722 F.2d 988 (2nd Cir. 1983), 505, ABKCO Music, Inc. v. Harrisongs Music, Ltd.

Docket Nº:505, 600, Dockets 82-7421, 82-7461.
Citation:722 F.2d 988
Party Name:603 ABKCO MUSIC, INC., Plaintiff-Appellant-Cross-Appellee, v. HARRISONGS MUSIC, LTD., Harrisongs Music, Inc., George Harrison, Apple Records, Inc., Broadcast Music, Inc., and Hansen Publications, Inc., Defendants-Appellees-Cross-Appellants, v. ABKCO INDUSTRIES, INC. and Allen Klein, Additional Parties with Respect to Counterclaims-Appellants-Cross-
Case Date:November 03, 1983
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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Page 988

722 F.2d 988 (2nd Cir. 1983)

603

ABKCO MUSIC, INC., Plaintiff-Appellant-Cross-Appellee,

v.

HARRISONGS MUSIC, LTD., Harrisongs Music, Inc., George

Harrison, Apple Records, Inc., Broadcast Music,

Inc., and Hansen Publications, Inc.,

Defendants-Appellees-Cross-Appellants,

v.

ABKCO INDUSTRIES, INC. and Allen Klein, Additional Parties

with Respect to Counterclaims-Appellants-Cross-Appellees.

Nos. 505, 600, Dockets 82-7421, 82-7461.

United States Court of Appeals, Second Circuit

November 3, 1983

Argued Nov. 24, 1982.

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[Copyrighted Material Omitted]

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Gideon Cashman, New York City (Pryor, Cashman, Sherman & Flynn, New York City, James A. Janowitz, Donald S. Zakarin, New York City, of counsel), for plaintiff-appellant-cross-appellee.

Joseph J. Santora, New York City (Santora Shenkman & Kushel, New York City, Robert B. McKay, New York City, of counsel), for defendants-appellees-cross-appellants.

Cleary, Gottlieb, Steen & Hamilton, New York City (Richard W. Hulbert, Albert S. Pergam, New York City, of counsel), co-counsel for Apple Records, Inc.

Before PIERCE, WINTER and PRATT, Circuit Judges.

PIERCE, Circuit Judge:

I. BACKGROUND

  1. Events Leading to Liability Trial

    On February 10, 1971, Bright Tunes Music Corporation (Bright Tunes), then copyright holder of the song "He's So Fine," composed by Ronald Mack, brought this copyright infringement action in the United States District Court for the Southern District of New York against former member of the musical group "The Beatles" George Harrison, and also against related entities (hereinafter referred to collectively as "Harrison Interests"), 1 alleging that the Harrison composition, "My Sweet Lord," (hereinafter referred to alternatively as "MSL") infringed the Ronald Mack composition, "He's So Fine," (hereinafter referred to alternatively as "HSF"). 2

    When this action was commenced, the business affairs of The Beatles, including Harrison Interests, were handled by ABKCO Music, Inc. (ABKCO) and Allen B. Klein, its President and "moving spirit." ABKCO Music, Inc. v. Harrisongs Music, Ltd., 508 F.Supp. 798, 799 (S.D.N.Y.1981). 3 ABKCO was Harrison's business manager during the initial stages of the copyright liability action herein, at which time the litigation was handled for Harrison by ABKCO's General Counsel.

    The following events preceded the instant appeal. Shortly after this action was commenced in February, 1971, Klein (representing Harrisongs Music, Inc. and George Harrison) met with Seymour Barash (President and major stockholder of Bright Tunes) to discuss possible settlement of this lawsuit. 4 Although Klein, at trial, denied having specific knowledge of the details of this discussion, he testified that he had suggested to Barash, around February of 1971, a purchase of the entire stock of Bright Tunes as a way to dispose of this lawsuit. Thus, in 1971, Klein was acting on behalf of Harrison Interests in an effort to settle this copyright infringement claim brought by Bright Tunes, although no settlement resulted.

    Subsequent to the Klein-Barash meeting, Bright Tunes went into "judicial dissolution

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    proceedings." This infringement action was placed on the district court's suspense calendar on March 3, 1972, and was resumed by Bright Tunes (in receivership) in early 1973. Also in early 1973 (March 31), ABKCO's management contract with The Beatles expired. Bitter and protracted litigation ensued between The Beatles and ABKCO over the winding down of management affairs--a dispute that ended in 1977 with The Beatles paying ABKCO $4.2 million in settlement.

    There is some disagreement as to whether further settlement negotiations took place between Harrison Interests and Bright Tunes between 1973 and mid-1975. 5 It appears undisputed, however, that Harrison Interests' attorney at least initiated settlement talks in the late summer of 1975; that in the period October 1975 through February 1976, settlement discussions took place between Bright Tunes' counsel and counsel for Harrison Interests regarding settlement of this infringement action (an offer by Harrison Interests based on United States royalties); and that those discussions were in the 50%/50% or 60%/40% range. These discussions culminated in a $148,000 offer by Harrison Interests in January of 1976 (representing 40% of the United States royalties).

    At about the same time (1975), apparently unknown to George Harrison, Klein had been negotiating with Bright Tunes to purchase all of Bright Tunes' stock. That such negotiations were taking place was confirmed as early as October 30, 1975, in a letter from Seymour Barash (Bright Tunes' former President) to Howard Sheldon (Bright Tunes' Receiver), in which Barash reported that there had been an offer from Klein for a substantial sum of money. The same letter observed that "[Klein] would not be interested in purchasing all of the stock of Bright Tunes ... if there was any doubt as to the outcome of this litigation."

    In late November 1975, Klein (on behalf of ABKCO) offered to pay Bright Tunes $100,000 for a call on all Bright Tunes' stock, exercisable for an additional $160,000 upon a judicial determination as to copyright infringement. In connection with this offer, Klein furnished to Bright Tunes three schedules summarizing the following financial information concerning "My Sweet Lord:" (1) domestic royalty income of Harrisongs Music, Inc. on MSL; (2) an updated version of that first schedule; and (3) Klein's own estimated value of the copyright, including an estimate of foreign royalties (performance and mechanical) and his assessment of the total worldwide future earnings.

    Barash considered the Klein offer only a starting point. He thought that a value of $600,000 was more accurate and recommended a $200,000 call, based on a $600,000 gross sales price. Also in December 1975, Barash noted, in a letter to counsel for the Peter Maurice Co., that Harrison Interests' counsel had never furnished a certified statement of worldwide royalties of MSL, but that from conversations between Stephen Tenenbaum (accountant for several Bright Tunes stockholders) and Klein, Bright Tunes had been given that information by Klein.

    Shortly thereafter, on January 19, 1976, Barash informed Howard Sheldon (Bright Tunes' Receiver) of the Klein offer and of the Bright Tunes stockholders' unanimous decision to reject it. Barash noted that "[s]ince Mr. Klein is in a position to know the true earnings of 'My Sweet Lord', his offer should give all of us an indication of the true value of this copyright and litigation." Sheldon responded in a letter dated January 21, 1976, noting, inter alia, that Harrison's attorneys were informed that no settlement would be considered by Bright Tunes until total sales of MSL were determined after appropriate figures were checked.

    On January 30, 1976, the eve of the liability trial, a meeting was held by Bright

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    Tunes' attorney for all of Bright Tunes' stockholders (or their counsel) and representatives of Ronald Mack. The purpose of the meeting was to present Bright Tunes with an offer by Harrison Interests of $148,000, representing 40% of the writers' and publishers' royalties earned in the United States (but without relinquishment by Harrison of the MSL copyright). At the time, Bright Tunes' attorney regarded the offer as "a good one." 508 F.Supp. at 802. The Harrison offer was not accepted, however. Bright Tunes raised its demand from 50% of the United States royalties, to 75% worldwide, plus surrender of the MSL copyright. The parties were unable to reach agreement and the matter proceeded to trial.

  2. Liability Trial and Events Thereafter

    A three-day bench trial on liability was held before Judge Owen on February 23-25, 1976. On August 31, 1976 (amended September 1, 1976), the district judge rendered a decision for the plaintiff as to liability, based on his finding that "My Sweet Lord" was substantially similar to "He's So Fine" and that Harrison had had access to the latter. Bright Tunes Music Corp. v. Harrisongs Music, Ltd., 420 F.Supp. 177 (S.D.N.Y.1976). The issue of damages and other relief was scheduled for trial at a later date.

    Following the liability trial, Klein, still acting for ABKCO, continued to discuss with Bright Tunes the purchase of the rights to HSF. During 1977, no serious settlement discussions were held between Bright Tunes and Harrison Interests. Indeed, the record indicates that throughout 1977 Bright Tunes did not authorize its attorneys to give Harrison a specific settlement figure. By November 30, 1977, Bright Tunes' counsel noted that Klein had made an offer on behalf of ABKCO that "far exceeds any proposal that has been made by the defendants." 6

    On February 8, 1978, another settlement meeting took place, but no agreement was reached at that meeting. Although it appears that everyone present felt that the case should be settled, it also appears that there were no further settlement discussions between Harrison Interests and Bright Tunes subsequent to that date. The Bright Tunes negotiations with ABKCO, however, culminated on April 13, 1978, in a purchase by ABKCO of the HSF copyright, the United States infringement claim herein, and the worldwide rights to HSF, for $587,000, an amount more than twice the original Klein (ABKCO) offer. This purchase was made known to George Harrison by Klein himself in April or May of 1978. Harrison "was a bit amazed to find out" about the purchase. 7

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  3. Damages Proceedings and Foreign Settlements

    On July 17, 1978, ABKCO adopted Bright Tunes' complaint and was substituted as the sole party plaintiff in this action. In May 1979, Harrison Interests obtained leave to assert affirmative defenses and...

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