751 F.3d 64 (2nd Cir. 2014), 13-1753-cv, Keiler v. Harlequin Enters., Ltd.
|Citation:||751 F.3d 64|
|Opinion Judge:||Barrington D. Parker, Circuit Judge:|
|Party Name:||BARBARA KEILER, MONA GAY THOMAS, AND LINDA BARRETT, ON BEHALF OF THEMSELVES AND ALL OTHERS SIMILARLY SITUATED, Plaintiffs-Appellants, v. HARLEQUIN ENTERPRISES LIMITED, HARLEQUIN BOOKS S.A., HARLEQUIN ENTERPRISES B.V., Defendants-Appellees. |
|Attorney:||DAVID B. WOLF (Michael J. Boni & John E. Sindoni, Boni & Zack LLC, Bala Cynwyd, PA, on the brief), David Wolf Law PLLC, New York, NY, for Plaintiffs-Appellants. DANIEL J. LEFFELL (Jay Cohen, on the brief), Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, NY, for Defendants-Appellees. JOHN ...|
|Judge Panel:||Before: KEARSE, JACOBS, AND PARKER, Circuit Judges.|
|Case Date:||May 01, 2014|
|Court:||United States Courts of Appeals, Court of Appeals for the Second Circuit|
Argued November 21, 2013.
Appeal from the United States District Court for the Southern District of New York. No. 12-cv-5558 -- Harold Baer, Jr., Judge.
Plaintiffs-Appellants Barbara Keiler, Mona Gay Thomas, and Linda Barrett are authors of romance novels who bring putative class action claims against publishing house Defendants-Appellees Harlequin Enterprises Limited (" Harlequin Enterprises" ) and its subsidiaries Harlequin Enterprises
B.V. (" HEBV" ) and Harlequin Books S.A. (" HBSA," and together with HEBV, " Harlequin Switzerland" ). Plaintiffs contend that the Harlequin entities breached agreements with them and other authors (the " Publishing Agreements" ) by paying them artificially low royalties on the sales of digitized versions of their books.
The United States District Court for the Southern District of New York (Baer, J.) concluded that plaintiffs' allegations failed to state claims and dismissed the amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). See Keiler v. Harlequin Enters. Ltd., No. 12-5558, 2013 WL 1324093 (S.D.N.Y. Apr. 2, 2013). For the reasons set forth below, we hold that plaintiffs' claims based on agency, assignment, and alter ego theories cannot serve to modify the terms of the Publishing Agreements and were properly dismissed. We also conclude that the amended complaint set forth sufficient facts to plead a breach of the Publishing Agreements on the theory that defendants calculated their e-book royalties based on an unreasonable license fee. Accordingly, we affirm the judgment in part, reverse it in part, and remand for further proceedings consistent with this Opinion.
This case arises in the context of a meteoric rise in e-book sales over the last several years.2 Defendant Harlequin Enterprises is the world's largest publisher of romance novels. Prior to 1983, Harlequin Enterprises directly contracted with authors for the publication of their works under the Harlequin (and related) imprints using a standard agreement which Harlequin Enterprises signed as the " Publisher." (Am. Compl. ¶ 34).
Beginning in 1983, Harlequin Enterprises changed this arrangement, ostensibly " for tax and related purposes." ( Id. ¶ 31). It registered a subsidiary HEBV, a Dutch company, in Fribourg, Switzerland. Thereafter, Harlequin Enterprises required authors to enter into publishing agreements substantially similar to its previous agreements, but with HEBV signing the agreements as the " Publisher" and with Harlequin Enterprises included in the agreements' definition of a " related licensee." ( See id. ¶ 35). Notwithstanding this change, Harlequin Enterprises continued to draft, negotiate, and administer the publishing agreements, as well as to edit, publish, and promote the authors' novels. ( See id. ¶ ¶ 3, 40, 41). HEBV, however, sent out royalty statements and payments to the authors. ( See id. ¶ ¶ 41, 42). Harlequin Enterprises advised authors that the purpose of the change was to " rationalize business procedures." ( Id. ¶ 35).
In 1994, Harlequin Enterprises registered HBSA, a Swiss company, as the successor of HEBV, again " for tax and related purposes." ( See Am. Compl. ¶ 31). Thereafter, HBSA signed the agreements as the " Publisher" and Harlequin Enterprises continued to be defined in the Publishing Agreements as a " related licensee." Harlequin Enterprises continued to publish, and promote the authors' novels while HBSA sent out royalty statements and payments. ( Id.¶ 36). Harlequin Enterprises advised authors that the change to having HBSA sign as the " Publisher" was a name change that " would not affect" them. ( Id.).
Under the terms of the Publishing Agreements, the authors granted to the
" Publisher" on a " sole and exclusive basis all the rights in and to [their Works] in any country throughout the world under various imprints and trade names during the full term of copyright." ( Id. ¶ 49 (brackets in original)). The Publishing Agreements additionally provided that HEBV or HBSA as the Publisher had " the sole and exclusive right to execute, sell, license or sublicense . . . rights subject to the sharing of net proceeds." ( Id.). The Publishing Agreements also detailed how authors were to be compensated in connection with the sales of various editions of their works. Specifically, author royalties on U.S. sales of mass market paperback and hardcover copies were based on a percentage of the cover price.
Moreover, the Publishing Agreements contained two umbrella clauses covering the potential sale, license, or distribution of the authors' works in other media. Under the " All Other Rights" clause, the Publishing Agreements provided that the authors' royalties would be calculated as follows:
On all other rights exercised by Publisher or its Related Licensees fifty percent (50%) of the Net Amount Received by Publisher for the license or sale of said rights. The Net Amount Received for the exercise, sale or license of said rights by Publisher from a Related Licensee shall, in Publisher's estimate, be equivalent to the amount reasonably obtainable by Publisher from an Unrelated Licensee for the license or sale of the said rights.
(Id. ¶ 52). The Other Rights clause provided:
If Publisher licenses, sublicenses or sells to an Unrelated Licensee any of the following rights to the Work anywhere in the world, in any language, Author's and Publisher's share of net amount received by Publisher for said license, sublicense or sale shall be apportioned as follows . . .
[Author's share] 50% [Publisher's Share] 50%.
(Am. Compl. ¶ 53 (brackets in original)). In addition, the Publishing Agreements provided that the Publisher could " assign this Agreement to any related legal entity," and could " delegate any of its editorial, administrative and/or other responsibilities pursuant to this Agreement to its parent company or to an affiliate, subsidiary or other related legal entity." ( Id.¶ 49). Consistent with this provision, Harlequin Enterprises performed many of the responsibilities of the Publisher under the agreements. ( See, e.g., id.¶ ¶ 3, 39, 41-48).
As the market for e-books expanded, Harlequin Enterprises sold and licensed e-books and e-book rights directly to consumers on its website and to e-book licensees such as Amazon. ( Id. ¶ 55). In 2011, Harlequin Enterprises informed authors that it believed that author royalties for e-books were covered by the All Other Rights clause in the Publishing Agreements and accordingly advised the authors that their royalty payments would be calculated based on the net amount received by Harlequin Switzerland from a license to publish e-books that Harlequin Switzerland purportedly granted to Harlequin Enterprises. Harlequin Enterprises claimed that the net amount received by Harlequin Switzerland was 6 percent to 8 percent of the cover price of the e-books, and that, consequently, the royalties owed to the authors were 50 percent of that amount, or 3 percent to 4 percent of the cover price of the e-books. ( Id. ¶ 56).
Plaintiffs commenced this putative class action seeking to represent authors who entered into Publishing Agreements with Harlequin Switzerland between 1990 and 2004. In their amended complaint, plaintiffs asserted three claims for breach of
contract grounded in agency, assignment, and alter ego liability. The common contention was that, under the Publishing Agreements, Harlequin Enterprises rather than Harlequin Switzerland should be recognized as the " Publisher" when calculating royalty payments. ( Id. ¶ 11). Under this reading, plaintiffs contended they are entitled to...
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