494 F.3d 378 (2nd Cir. 2007), 05-7017, Phillips v. Audio Active Ltd.

Docket Nº:Docket No. 05-7017-cv.
Citation:494 F.3d 378, 83 U.S.P.Q.2d 1489
Party Name:Peter PHILLIPS, professionally known as Pete Rock, Plaintiff-Appellant, v. AUDIO ACTIVE LIMITED, trading as Barely Breaking Even, Studio Distribution and Sandbox Automatic, Inc., Defendants-Appellees, HipHopSite.com, Defendant.
Case Date:July 24, 2007
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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494 F.3d 378 (2nd Cir. 2007)

83 U.S.P.Q.2d 1489

Peter PHILLIPS, professionally known as Pete Rock, Plaintiff-Appellant,


AUDIO ACTIVE LIMITED, trading as Barely Breaking Even, Studio Distribution and Sandbox Automatic, Inc., Defendants-Appellees,

HipHopSite.com, Defendant.

Docket No. 05-7017-cv.

United States Court of Appeals, Second Circuit.

July 24, 2007

Argued October 26, 2006

Peter Phillips, p/k/a Pete Rock, appeals the November 30, 2005 decision and order and the December 8, 2005 final judgment of the United States District Court for the Southern District of New York (Daniels, J.) dismissing his complaint against defendant music companies for improper venue under Federal Rule of Civil Procedure 12(b)(3).

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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PAUL A. CHIN, Law Offices of Paul A. Chin, New York, New York, for Plaintiff-Appellant.

DOROTHY M. WEBER, New York, New York (Judith A. Meyers, Shukat Arrow Hafer Weber & Herbsman, LLP, New York, New York, of counsel), for Defendants-Appellees.

Before: CARDAMONE, WALKER, and STRAUB, Circuit Judges.

CARDAMONE, Circuit Judge.

A plaintiff may think that as the initiator of a lawsuit he is the lord and master of where the litigation will be tried and under what law. But if he is a party to a contract that contains forum selection and choice of law clauses his view of himself as ruler of all he surveys may, like an inflated balloon, suffer considerable loss of altitude. Such is the situation plaintiff faces in the appeal before us, where we revisit an issue last addressed by us 15 years ago: what is the effect of a forum selection clause on a complaint that asserts claims arising under the Copyright Act? See Corcovado Music Corp. v. Hollis Music, Inc., 981 F.2d 679 (2d Cir. 1993).

Plaintiff Peter Phillips, professionally known as Pete Rock (plaintiff or appellant), is a musician who in 2002 entered into a recording contract with defendant Audio Active Limited t/a Barely Breaking Even (BBE), a music company. This contract gave fruit to two albums in 2004 and 2005. The first album all agree was governed by the recording contract and, except for Phillips' contention that BBE owes him money, it appears to have been produced, released and distributed according to plan. The second album is the source of the principal controversy between the parties.

In his complaint against BBE and defendants Studio Distribution (Studio), Navarre Corporation (Navarre), HipHopSite.com and Sandbox Automatic, Inc. (Sandbox) (collectively defendants), Phillips averred that the recording contract contemplated the first album only, and that the release of the second album, over

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his objections, infringed his copyrights in the 15 songs comprising the album. BBE and Studio moved to dismiss plaintiff's complaint on the basis of a forum selection clause in the contract pursuant to which the parties had agreed to litigate in England any proceeding arising out of the contract.

The United States District Court for the Southern District of New York (Daniels, J.) held the forum clause governed Phillips' action, including his copyright claims relating to the second album. Phillips appeals from the district court's November 30, 2005 decision and order and its December 8, 2005 judgment granting BBE and Studio's Rule 12(b)(3) motion to dismiss his complaint for improper venue. Plaintiff contends that the district court erred in reading the forum clause to require -- rather than permit -- proceedings to be brought in England, that his copyright claims did not arise out of the recording contract and should have been exempted from operation of the forum clause, and that the clause should be set aside because its enforcement would be unreasonable.

We agree with the district court's interpretation of the clause as mandatory and its holding that enforcement of the clause would not be unreasonable and affirm the dismissal of Phillips' breach of contract claim. However, plaintiff's remaining claims predicated on defendants' alleged infringement of his copyrights were improperly dismissed under the forum selection clause.


A. The Recording Contract

Phillips entered into the recording contract with BBE in September 2002 under the terms of which he agreed to provide his services as a recording artist and producer to create musical compositions, and BBE agreed to pay the costs of production and to pay royalties to Phillips, including a $90, 000 advance payable in two installments.

The contract required Phillips to produce "no less than ten (10) newly recorded and previously unreleased tracks . . . of no less than sixty (60) minutes" and defined these tracks as the "master recordings." The minimum number of tracks was not paired with a maximum anywhere in the contract, but the master recordings were later defined as the album, which was provisionally entitled "Soul Survivor 2." BBE acquired the right to exploit all products of Phillips'services under the contract and the entire copyright in the master recordings. The final paragraph of the recording contract contains a choice of law and forum clause that reads: "[t]he validity[,] construction[,] and effect of this agreement and any or all modifications hereof shall be governed by English Law and any legal proceedings that may arise out of it are to be brought in England." Phillips also signed a letter agreement, which is attached to the recording contract, authorizing Soul Brother Records, Inc. to offer Phillips'services under the contract and stating that the letter agreement "shall be subject to the same laws and exclusive jurisdiction as the above agreement." Phillips received $55, 000 from BBE in a first installment of his advance on royalties. Pursuant to the contract, the balance of the advance was payable upon delivery to BBE of the last of the master recordings.

B. Release of Second Album

In 2004 BBE released an album comprised of Phillips' musical compositions entitled, as foreseen in the contract, Soul Survivor 2. While Phillips was preparing the songs that were released on Soul Survivor 2, he composed and recorded additional

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music. Plaintiff alleges that in 2004, BBE and Studio, a second recording company, sought his permission to release the additional songs, but Phillips, believing the tracks were not ready for release, denied their request. BBE, Studio and Navarre, a distribution company, nonetheless proceeded to release a second album in August or September of 2004 containing 15 additional songs created by Phillips. Phillips asserts that Sandbox and HipHopSite.com, both Internet-based distributors of digital media, sold copies of the allegedly infringing album. Plaintiff settled his claims against HipHopSite.com and these were dismissed with prejudice by the district court on May 3, 2005.

C. Prior Legal Proceedings

Plaintiff commenced the instant action in the Southern District of New York on January 26, 2005. His second amended complaint contained five counts against the defendants. Count One stated that BBE had breached the recording contract by failing to pay the second installment of the royalties advance. Counts Two and Three were for direct and contributory copyright infringement under the Copyright Act, 17 U.S.C. § 101 et seq., and requested remedies provided by the Act. Counts Four and Five asserted alternative state law claims for unjust enrichment and unfair competition on the basis of defendants' exploitation of the additional tracks.

On May 27, 2005 BBE and Studio moved to dismiss under Rules 12(b)(1), (3) and (6) on the grounds that the forum selection clause in the recording contract required Phillips to bring his suit in England. In a decision and order dated November 30, 2005 and a final judgment dated December 8, 2005, the trial court granted BBE and Studio's motion to dismiss for improper venue under Fed.R.Civ.P. 12(b)(3). The district court classified the forum selection clause as mandatory rather than permissive, and it held that Phillips had failed to show that enforcement of the clause would be unreasonable. With respect to plaintiff's copyright claims, Judge Daniels determined that any dispute concerning the defendants' rights to exploit this music was primarily contractual because the defendants had acquired possession of the music legitimately under the contract. Phillips appeals the November 30, 2005 decision and order and the December 8, 2005 final judgment.


I Forum Selection Clause

A. Dismissal

Determining whether to dismiss a claim based on a forum selection clause involves a four-part analysis. The first inquiry is whether the clause was reasonably communicated to the party resisting enforcement. See, e.g., D.H. Blair & Co. v. Gottdiener, 462 F.3d 95, 103 (2d Cir. 2006). The second step requires us to classify the clause as mandatory or permissive, i.e., to decide whether the parties are required to bring any dispute to the designated forum or simply permitted to do so. See John Boutari & Son, Wines & Spirits, S.A. v. Attiki Imps. & Distribs. Inc., 22 F.3d 51, 53 (2d Cir. 1994). Part three asks whether the claims and parties involved in the suit are subject to the forum selection clause. See, e.g., Roby v. Corp. of Lloyd's, 996 F.2d 1353, 1358-61 (2d Cir. 1993).

If the forum clause was communicated to the resisting party, has mandatory force and covers the claims and parties involved in the dispute, it is presumptively enforceable. See id. at 1362-63. The fourth, and final, step is to ascertain whether the resisting party has rebutted the presumption of enforceability by making

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a sufficiently strong showing that "enforcement would be unreasonable or unjust, or that the clause was invalid for such reasons as fraud or overreaching." M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15, 92 S.Ct. 1907, 32 L.Ed.2d 513 (1972) (establishing...

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