Mellencamp v. Riva Music Ltd.

OPINION AND ORDER

Plaintiff John J. Mellencamp, professionally known as John Cougar Mellencamp, is a songwriter, performer, and recording artist who has enjoyed enormous success in recent years. Defendants (collectively “the Riva companies”) are affiliated corporations owned and/or controlled by William A. Gaff. On May 12, 1977, Mellencamp entered into a written publishing agreement with defendant G.H. Music, Ltd. Pursuant to the 1977 agreement, Mellen-camp assigned to G.H. Music the worldwide copyrights in and to the compositions to be authored by him during the term of the agreement. The 1977 agreement was modified by a written agreement, dated February 28, 1979, and by letter agreement, dated February 21, 1980. On June 15, 1981, John Cougar, Inc. entered into $ written publishing agreement with defendant Riva Music, Ltd. whereby John Cougar, *1156 Inc. assigned Mellencamp’s songwriting and composing services and copyrights to Riva. On June 1, 1983, Mellencamp entered into a third publishing agreement with defendant Riva Music, Inc. Finally, by written agreement dated July 26, 1985, among Riva Music, Inc., Riva Music, Ltd., G.H. Music, Ltd, Mellencamp, and John Cougar Inc., each of the prior publishing agreements was amended in certain respects. In exchange for the assignment of the copyrights, Mellencamp received a percentage of the royalties earned from the exploitation of his music.

By virtue of the publishing agreements, according to the complaint, the Riva companies became fiduciaries for Mellencamp’s interests. In his first and second claims, Mellencamp alleges that defendants breached their fiduciary duties by failing to actively promote his songs and to use their best efforts to obtain all the monies rightfully due him from third parties. In his third claim, Mellencamp contends that the Riva companies breached the various publishing agreements controlling their relationship by consistently underreporting royalties due him and by failing to timely render royalty statements and payments. In his fourth and final claim, Mellencamp contends that he entered into a binding agreement with the Riva companies pursuant to which the defendants agreed to release him from all obligations under the publishing contracts and to return all the rights to and in his musical compositions in exchange for $3 million dollars. This agreement was reached, according to plaintiff, at a luncheon meeting in a New York City restaurant among Sigmund Balaban, Mellencamp’s accountant and advisor, William Gaff, and Milton Marks, Gaff’s attorney. Both sides agree that the sale of the Riva companies’ rights in Mellencamp’s compositions was discussed, at least in general terms, at this meeting. The parties are in sharp dispute, however, over the legal consequences of their discussions.

Defendants now move pursuant to Rule 12(b)(6) to dismiss the complaint on the ground that it fails to state any valid claim for relief. Specifically, defendants contend 1) that the first two claims fail as a matter of law because no fiduciary duties are owed by a publisher to an author under a publishing agreement 2) that the third claim fails to specify which of the publishing agreements were breached, who the parties to the agreements were, and which provisions of the agreements were breached, and also fails to include a necessary party, and 3) that the fourth claim must be dismissed because the enforcement of an oral agreement to transfer copyrights is barred by § 204(a) of the Copyright Act and/or the New York Uniform Commercial Code statute of frauds § 1-206(1). In the alternative, defendants argue that they are entitled to summary judgment dismissing the fourth claim on the ground that the parties did not intend the alleged oral agreement to be binding.

ANALYSIS

I. Fiduciary Duties

Under New York law, the existence of fiduciary obligations in a particular relationship cannot be determined by recourse to fixed formulas or precedents:

Broadly stated, a fiduciary relationship is one founded upon trust or confidence reposed by one person in the integrity and fidelity of another. It is said that the relationship exists in all cases in which influence has been reposed and betrayed. The rule embraces both technical fiduciary relations and those informal relations which exist whenever one man trusts in, and relies upon, another (see Mobil Oil corp. v. Rubenfeld, 72 Misc.2d 392, 399-400, 339 N.Y.S.2d 623, aff'd. 77 Misc.2d 962, 357 N.Y.S.2d 589, revs, on other grounds 48 A.D.2d 428, 370 N.Y.S.2d 943). Such a relationship might be found to exist, in appropriate circumstances between close friends (see Cody v. Gallow, 28 Misc.2d 373, 214 N.Y. S.2d 127) or even where confidence is based upon prior business dealings (see Levine v. Chussid, 31 Misc.2d 412, 221 N.Y.S.2d 311).

Penato v. George, 52 A.D.2d 939, 942, 383 N.Y.S.2d 900, 904-05 (2d Dep’t 1976). Notwithstanding this broad rule, defendants, *1157 relying on Van Valkenburgh, Nooger & Neville, Inc. v. Hayden Publishing Co., 30 N.Y.2d 34, 330 N.Y.S.2d 329, 281 N.E.2d 142 (1972), cert. denied, 409 U.S. 875, 93 S.Ct. 125, 34 L.Ed.2d 128 (1972), argue that the relationship between an author and a publisher can never be a fiduciary relationship. Van Valkenburgh does not support this proposition.

There, a publisher and an author entered into a written agreement which provided, inter alia, that the publisher was obligated to use its best efforts to promote the author’s books. Id., 30 N.Y.2d at 43, 330 N.Y.S.2d at 331, 281 N.E.2d at 144. The agreement also provided that the author would receive a 15% royalty on all books sold. Id. The trial court found that the publisher did not use its best efforts to promote the books, the publisher occupied a fiduciary relationship to the author, and the publisher failed to act in good faith in that relationship. Id. at 44, 330 N.Y.S.2d at 332, 281 N.E.2d at 144. On appeal, the Appellate Division determined that no fiduciary relationship existed between the parties. Id. Instead, the court concluded, the relationship between the parties was one of ordinary contract. Id. The court also concluded that the publisher did not breach its duty of good faith but found that the publisher did breach its contractual obligation to use its best efforts to promote the author’s books. Id. The New York Court of Appeals affirmed, concluding that “it could be found, as a matter of law, on the record, that there was no fiduciary relationship.” Id. at 46, 330 N.Y.S.2d at 334, 281 N.E.2d at 145 (emphasis added). See also Lane v. Mercury Record Corp., 21 A.D.2d 602, 252 N.Y.S.2d 1011 (1st Dep’t 1964) (a royalty or percentage arrangement would not in and of itself establish a fiduciary relationship), aff'd, 18 N.Y.2d 889, 276 N.Y.S.2d 626, 223 N.E.2d 35 (1966). The Court did not hold that fiduciary obligations could never arise in a relationship based at least in part on publishing agreements.

The complaint as drafted, however, goes further than this, suggesting that fiduciary obligations attach to the publisher-author relationship as a matter of law and, consequently, that the Riva companies’ alleged failure to meet their express or implied contract obligations amounts to a breach of trust. In addition, there is language in several older state cases, as well as in federal cases interpreting New York state law, that arguably supports the view that a publisher-author contract creates a “technical fiduciary relation.” If these cases can be so interpreted, they are directly at odds with the greater weight of authority which teaches that the conventional publisher-author arrangement is not a per se fiduciary relationship. Commenting on the ambiguities in the caselaw, Judge Haight observed that “[t]he legal responsibilities attendant upon this status ... are far from clear.” Warfield v. Jerry Vogel Music Co., Inc., 1978 Copyright L.Rep. (CCH) para. 25,005, at 15,033 (S.D.N.Y. Mar. 21, 1978). These cases warrant discussion.

Under New York law, every contract includes an implied covenant of good faith and fair dealing which precludes a party from engaging in conduct that will deprive the other contracting party of his benefits under their agreement. Filner v. Shapiro, 633 F.2d 139, 143 (2d Cir.1980). A contract is also deemed to include any promise which a reasonable person in the position of the promisee would be justified in believing was included. Rowe v. Great Atlantic & Pacific Tea Co., Inc., 46 N.Y.2d 62, 69, 412 N.Y.S.2d 827, 831, 385 N.E.2d 566, 570 (1978). When the essence of a contract is the assignment or grant of an exclusive license in exchange for a share of the assignee’s profits in exploiting the license, these principles imply an obligation on the part of the assignee to make reasonable efforts to exploit the license. Havel v. Kelsey-Hayes, 83 A.D.2d 380, 382, 445 N.Y.S.2d 333, 335 (4th Dep’t 1981). See also Zilg v. Prentice-Hall, Inc., 717 F.2d 671 (2d Cir.1983) (promise of publisher to publish book which it has obtained exclusive rights to implies good faith effort to promote the book). The critical point here is that a publisher’s obligation to promote an author’s work is one founded in contract rather than on trust principles.

*1158 While it is true that several of the cases cited by plaintiff discuss certain “trust elements that are part of the relationship between a writer and a publisher,” Nolan v. Sam Fox Publishing Company, Inc., 499 F.2d 1394, 1400 (2d Cir.1974), it is apparent that the courts were in fact discussing a publisher’s implied-in-law contract obligations or were relying on trust principles in situations where the publisher tolerated or participated in tortious conduct against the author. For example, in Schisgall v. Fairchild Publications, 207 Misc. 224, 137 N.Y.S.2d 312 (Sup.Ct.N.Y.Cty.1955), the plaintiff-author alleged that his publisher refused to fill existing orders for his book, withdrew his book from sale, and refused to transfer the rights to the book back to the author, all for “the single purpose to abort or destroy ... the defendant’s interests.” Id. at 232, 137 N.Y.S.2d at 319. In determining whether the alleged conduct created tort liability in addition to liability in contract, the court observed that “the intentional infliction of injury without just cause is prima facie tortious.” Id. at 230, 137 N.Y.S.2d at 317.

As a preliminary matter, however, the court had to determine whether the plaintiff could be deemed to have suffered any injury in the absence of express contractual obligations or rights governing the complained of conduct. In response to defendants’ assertion that the plaintiff retained no protectible interest in his literary product because he assigned all his rights to the defendant, the court stated:

[A]s I read the contract, even though there be an absolute assignment, there was such an assignment on the basis of the business to be done — such a transfer of rights and property to the defendant as did not denude the plaintiffs of a certain right and interest, and that arrangement resulted in that kind of relationship that fair dealing was required between the parties. It is not the express contractual reservation of rights per se on which plaintiffs rely, but upon the defendant’s breach of the special relationship thus created — plus the defendant’s intentional purpose to destroy. It is not necessary to use the magic words of “fiduciary relationship”, or to hold that a “relationship of trust and confidence” was created by the contract, or to find that defendant became a “trustee” of the copyright for the benefit of the plaintiffs (as well as of the defendant). As Chief Judge Cardozo put it in Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88, 91,118 N.E. 214: “The law has outgrown its primitive stage of formalism when the precise word was the sovereign talisman, and every slip was fatal. It takes a broader view today. A promise may be lacking and yet the whole writing may be ‘instinct with an obligation, ’ imperfectly expressed.” Similarly, the special relationship here may not be specifically expressed, and yet the whole factual situation may be instinct with a duty which, should be imposed by law upon the publisher.

The law implies a promise on the defendant’s part to endeavor to make the book and copyright productive, since that is the very purpose of the assignment of literary rights and the correlative obligation to pay royalties, In re Waterson, Berlin & Snyder Co. v. Irving Trust Co., 48 F.2d 704 [2nd Cir.1981],

Id. at 230-31, 137 N.Y.S.2d at 317-18 (emphasis added). Despite the reference to “fiduciary relationship” and “relationship of trust,” it is clear, in context, that the court was talking about a publisher’s implied-in-law contract obligation to use its best efforts to promote an author’s work, where the publisher has exclusive rights in the work. The single case cited in the court’s discussion of the “special relationship” between author and publisher, Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88, 91, 118 N.E. 214 (1917) (Cardozo, C.J.), is the seminal authority on an exclusive licensee’s implied promise to use reasonable efforts to generate profits from the license. The court’s reliance on contract principles is confirmed later in the opinion:

If the defendant acted merely as a contracting party (at legal liberty perhaps to breach its agreement on payment of damages), that is one thing. But if the *1159 defendant went further, and acted with intent to inflict injury beyond that contemplated as a result of the mere breach of contract, I would hold that the contract does not grant the defaulter immunity from tort liability. Even though the act would not be actionable in tort if the defendant “elected” to breach its contract in furtherance of its legitimate business interests, it is tortious (as well as a breach of contract) if there be no self-interest involved, but rather the sole purpose be that of injury to another.

Id., 207 Misc.2d at 232, 137 N.Y.S.2d at 319 (emphasis added). The holding of Schis-gall is that a publisher who breaches his implied contract obligation to exploit an author’s work with no motive other than to injure the author, is liable for prima facie tort. See Nifty Foods Corp. v. Great Atlantic & Pacific Tea Co., 614 F.2d 832, 838 n. 7 (2d Cir.1980) (“Schisgall ... involved the deliberate and unjustified destruction of a property right entrusted under a contract”).

Relying on the two paragraphs from 207 Misc.2d at pages 230-31, 137 N.Y.S.2d at 317-18 of Schisgall quoted above, the court in Manning v. Miller Music Corp., 174 F.Supp. 192, 195-96 (S.D.N.Y.1959), characterized the relationship between publisher and author as one involving fiduciary obligations. But as in Schisgall, the court did not hold that the publisher’s breach of contract obligations gave rise to liability as a fiduciary, nor was such liability even at issue. The question in Manning was whether the plaintiffs, composers of a song who assigned their copyrights to a publisher, had standing to maintain a suit for infringement against a third party. Id. at 194. The court concluded that the “peculiar relationship between the author and his publisher,” id. at 195, gives the authors standing to bring suit against a third party infringer when the publisher fails to do so. “It is this fiduciary relationship imposing equitable obligations upon the publisher beyond those ordinarily imposed by law upon those dealing fully at arms’ length, which gives the plaintiffs standing to sue here.” Id. at 196. Analogizing the situation to a stockholder’s derivative action, id. at 196, the court reasoned that plaintiffs could maintain the infringement action as long as the publisher was joined as a nominal defendant. Id. Notably, the court concluded that it would be inappropriate to force plaintiffs to institute “a separate action in contract against the publisher” to achieve the same end. Id. at 197 (emphasis added). See also Cortner v. Israel, 732 F.2d 267, 271 (2d Cir.1984) (when a composer assigns a copyright title to a publisher in exchange for the payment of royalties, an equitable trust relationship is established between the two parties which gives the composer standing to sue for infringement of the copyright). In a similar vein, the court in Nelson v. Mills, 278 A.D. 311, 104 N.Y.S.2d 605 (1951), aff'd, 304 N.Y. 966, 110 N.E.2d 892 (1953), held that a publisher’s actual promotion of a song which infringed the author’s was a “breach of contract or trust.” Id. at 312, 104 N.Y.S.2d at 606. But the court also asserted, echoing Schis-gall, that “the defendant was not obligated to promote the sale of plaintiff’s song.” Id. at 312, 104 N.Y.S.2d at 607. 1

To the extent the cases discussed above intended to posit a per se rule that a publisher with exclusive rights in a work is a fiduciary for the author’s interests, they must be rejected as inconsistent with Van Valkenburgh. The better view, and the one consistent with Van Valkenburgh, is that the “trust elements” in a publisher-author relationship come into play when the publisher tolerates infringing conduct, Manning, Cortner, or participates in it, Nelson v. Mills. Ordinarily, however, the express and implied obligations assumed by a publisher in an exclusive licensing contract are not, as a matter of law, fiduciary duties. See Sobol v. E.P. Dutton, Inc., 112 *1160 F.R.D. 99, 104 (S.D.N.Y.1986) (Weinfeld, J.); Ekern v. Sew/Fit Company, Inc., 622 F.Supp. 367, 373 (N.D.Ill.1985) (citing Van Valkenburgh). Cf. Beneficial Commercial Corp. v. Murray Glick Datsun, 601 F.Supp. 770, 772 (S.D.N.Y.1985) (absent assumption of control or responsibility and corresponding repose of trust, arm’s length business transaction does not give rise to fiduciary relationship). Accordingly, since plaintiffs first two claims are predicated solely upon the professional relationship between the parties and do not plead any specific conduct or circumstances upon which trust elements are implicated, they are dismissed. In the unlikely event that plaintiff can repair his pleadings in this regard, he is given leave to replead within twenty days of the date of this order.

II. Breach of Contract.

Defendants contend that the third claim for breach of contract should be dismissed because it fails to specify the contracts and specific contract provisions at issue in the lawsuit. The Court disagrees. It is now axiomatic that a complaint need only provide “ ‘a short and plain statement of the claim’ that will give the defendant fair notice of what the plaintiff’s claim is and the grounds upon which it rests.” 2A J. Moore, Moore’s Federal Practice para. 8.13 at 8-62 (2d ed. 1987). The present complaint clearly satisfies this minimal requirement. Defendants’ motion to dismiss demonstrates their awareness of the contracts at issue in this case, and the alleged breach — defendants’ failure to fully and timely report royalties — is more than sufficient to put defendants on notice of the claims against them. The two cases relied on by defendants on this leg of their motion are wholly inapposite to the case at bar.

In Nordic Bank P.L. C. v. Trend Group, 619 F.Supp. 542 (S.D.N.Y.1985), the complaint alleged only that certain agreements between the parties had been breached. Id. at 562. The pleadings were bereft of any reference to a specific promise or the nature of defendant’s failure to meet its obligations. Id. The court ruled, quite reasonably, that such a “conclusory allegation provide[d] insufficient notice of the facts underlying the breach of contract claim.” Id. at 562. In Murphy v. White Hen Pantry Co., 691 F.2d 350, 353 (7th Cir.1982), the complaint lacked even the conclusory allegation of a breach found in Nordic Bank. Id. at 351. Instead the plaintiffs argued, in response to defendant’s motion to dismiss, that such a claim was “implicitly alleged in the complaint.” Id. Even under those circumstances, the court did not dismiss plaintiff’s argument out of hand but concluded that the complaint did not plead facts sufficient to notify defendants of a contract claim. Id. at 352. The instant complaint is simply not comparable to the inscrutable pleadings in Nordic Bank and Murphy.

The Court does, however, agree that defendants Avir Music, Inc. and H.G. Music, Inc. must be dismissed from the complaint. Mellencamp alleges that he entered into agreements with defendants G.H. Music Ltd., Riva Music, Ltd., and Riva Music Inc. “Before [a] defendant may be held accountable for the breach of a contract, it must be demonstrated that he was a party thereto.” Stratton Group, Ltd. v. Sprayregen, 458 F.Supp. 1216, 1218 (S.D.N.Y.1978). Avir Music, Inc. and H.G. Music, Inc. are not alleged to be parties to the publishing agreements and thus the pleadings do not provide any basis upon which relief could be granted against these defendants. See id.; Franklin v. Carpinello, 84 A.D.2d 613, 613, 444 N.Y.S.2d 248, 249 (3d Dep’t 1981). The Court is unaware of any authority, and plaintiff has not offered any, to support plaintiff’s assertion that these two defendants may be liable for the breach of a contract which they are strangers to simply because they share the same director and/or owner as the other corporate defendants or because they assisted the other corporate defendants in the “administration of the Mellencamp publishing agreements.” Plaintiff’s Memorandum at 11. Plaintiff’s third claim is dismissed as against Avir Music, Inc. and H.G. Music, Inc. with leave to replead within twenty *1161 days of the date of this order. 2

Defendants contend that the third claim is defective, at least with respect to the publishing agreement dated June 15, 1981, because John Cougar Inc. and not Mellen-camp is the party to that contract. 3 As Judge Stanton has observed, “[i]n order to state a contract claim a plaintiff must at least allege either that he was a party to a valid contract ... or that he was an intended beneficiary of a contract between the defendant and a third party.” Tampa Chain Company of Providence, Inc. v. Odena Marketing International Corp., No. 84 Civ. 0707, slip op. at 2 (S.D.N.Y. April 3, 1986) [available on WESTLAW, 1986 WL 4066] (Lexis Genfed Library, Dist. File). Although under New York law, an agent can maintain an action in his own name on behalf of his principal, he can only do so if he is a party to the contract, a transferee, or a holder of an interest in the contract. Colonial Securities, Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 461 F.Supp. 1159, 1165 (S.D.N.Y.1978); In re Best Film v. Video Corp., 46 B.R. 861, 876 (E.D.N.Y.1985). While Mellencamp may in fact have no rights under the 1981 agreement, this issue cannot be resolved on the face of the pleadings since the complaint, construed broadly, asserts that Mel-lencamp is a party to or an intended beneficiary of all relevant publishing agreements. Because defendants have submitted matters outside of the pleadings, specifically the 1981 contract, it is appropriate to treat this leg of the motion as one for partial summary judgment. Fed.R.Civ.P. 12(b)(6). Plaintiff shall, within twenty days of the entry of this order, submit evidence on the issue of his rights under the 1981 agreement.

III. Statute of Frauds.

The Statute of Frauds provision of the Copyright Act, 17 U.S.C. § 204(a), provides:

A transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner’s duly authorized agent.

According to defendants, § 204(a) bars plaintiffs fourth claim which, they argue, alleges the existence of an oral agreement to transfer to him the copyrights in his compositions. Defendants also rely, in the alternative, on § 1-206(1) of the New York Uniform Commercial Code which provides:

[A] contract for the sale of personal property is not enforceable by way of action or defense beyond five thousand dollars in amount or value of remedy unless there is some writing which indicates that a contract for sale has been made between the parties at a defined or stated price, reasonably identifies the subject matter, and is signed by the party against whom enforcement is sought or his authorized agent.

With respect to the Copyright Act, Mellencamp attempts to draw a distinction between cases where the validity of a purported oral transfer is at issue and cases where, as here, an oral agreement to transfer a copyright is sought to be enforced. The Copyright Statute of Frauds only applies to the former, according to Mellen-camp. He also makes the unrefuted observation that the writing confirming the transfer of a copyright license can be executed after thé transfer. See Eden Toys, *1162 Inc. v. Florelee Undergarment Co., Inc., 697 F.2d 27, 38 (2d Cir.1982).

Turning first to the applicability of the statute of frauds, the cases do not support Mellencamp’s restrictive reading of § 204(a). In Library Publications, Inc. v. Medical Economics Co., 548 F.Supp. 1231 (E.D.Pa.1982), aff'd, 714 F.2d 123 (3d Cir.1983), a trade book publisher sued another publisher charging, inter alia, that the defendant breached an oral contract to grant plaintiff the right to distribute a certain book. Id. at 1232. Because § 204(a) requires such agreements to be in writing, the court granted summary judgment dismissing the complaint. Id. at 1234. See also 3 Nimmer, On Copyright § 10.03[a] at 10-34 n. 5.1 (1988) (the writing requirement of § 204(a) is significant in actions for breach of contract as well as in actions for copyright infringement). Moreover, Mel-lencamp’s cramped interpretation of § 204 is inconsistent with the underlying purpose of the statute of frauds which is “to protect copyright holders from persons mistakenly or fraudulently claiming oral licenses.” Eden Toys, Inc., 697 F.2d at 36. Thus there is no merit to plaintiff’s contention that a contract to transfer a copyright can be enforced without a writing.

Plaintiff attempts to avoid the U.C. C. statute of frauds by arguing that the principal asset to be transferred pursuant the oral agreement was Mellencamp’s services as a songwriter rather than the copyrights and thus the agreement “cannot be characterized as merely a ‘sale’ of copyrights.” Plaintiff’s Memorandum at 16. Though not stated, it is implied that the statute of frauds is inapplicable to a contract which subject matter falls, in part, outside the scope of the statute. Plaintiff’s Memorandum at 15. Plaintiff also contends that § 1-206 is inapplicable to a sale of copyrights. Neither assertion is correct.

First, the single case relied on by plaintiff for the partial-sale argument is inappo-site to the present facts. In Lee v. Joseph E. Seagram & Sons, Inc., 413 F.Supp. 693 (S.D.N.Y.1976), the alleged oral contract did not involve the sale of personal property at all. Id. at 704. Although no authority is presented on the point by either side, plaintiff’s partial-sale argument does beg the question of whether a contract is unenforceable in its entirety where certain terms of the agreement fall within the statute of frauds and others without. The general rule in New York is:

if part of an entire contract is void under the Statute of Frauds, the whole of such contract is. void (De Bee