Merchant v. Levy

Decision Date07 August 1996
Docket NumberD,1768,Nos. 1322,1653,s. 1322
Citation92 F.3d 51
Parties1996 Copr.L.Dec. P 27,551, 39 U.S.P.Q.2d 1768 Jimmy MERCHANT and Herman Santiago, Plaintiffs-Appellees-Cross-Appellants, v. Morris LEVY, Big Seven Music Corp. and Roulette Records, Inc., Defendants-Appellants-Cross-Appellees, and Windswept Pacific Entertainment Co., Intervenor-Defendant-Appellant-Cross-Appellee. ockets 95-7763L, 95-7765CON, 95-7767XAP.
CourtU.S. Court of Appeals — Second Circuit

James B. Sheinbaum, New York City, Scott L. Baker, New York City (Leon B. Borstein, Borstein, Sheinbaum & Lurie, New York City; Alan L. Shulman, Silverman & Shulman, New York City, on the briefs), for defendants-appellants-cross-appellees, Morris Levy, Big Seven Music Corp., Roulette Records, Inc., and intervenor-defendant-appellant-cross-appellee Windswept Pacific Entertainment Co.

Robert W. Cinque, New York City (James P. Cinque, Cinque & Cinque, New York City, on the brief), for plaintiffs-appellees-cross-appellants.

Before: NEWMAN, Chief Judge, FEINBERG and OAKES, Circuit Judges.

JON O. NEWMAN, Chief Judge.

This appeal concerns the appropriate time period in which those claiming to be co-authors of a work whose copyright is registered to another person may sue to establish their co-ownership rights. Defendants-appellants-cross-appellees Morris Levy, Big Seven Music Corp., and Roulette Records, Inc. (the "Levy Defendants") and intervenor-defendant-appellant-cross-appellee Windswept Pacific Entertainment Co. ("Windswept") (collectively, the "Defendants") appeal from the judgment of the District Court for the Southern District of New York (Naomi Reice Buchwald, Chief Magistrate Judge) entered on June 28, 1995. After a trial on the issue of liability was held in part before a jury and in part before the Court, the Court declared plaintiffs-appellees-cross-appellants Jimmy Merchant and Herman Santiago ("Plaintiffs") co-authors with Frankie Lymon of the well-known musical composition Why Do Fools Fall in Love ("Fools "), and co-owners of the copyright therein. Merchant v. Lymon, 828 F.Supp. 1048 (S.D.N.Y.1993). The Court awarded Plaintiffs an undivided one-half interest in the copyright of Fools and monetary damages that accrued within three years of the filing of the lawsuit. We agree with Defendants that Plaintiffs' claim seeking a declaration of co-ownership rights based on their co-authorship of Fools is time-barred by the three-year statute of limitations, and we therefore reverse the judgment of the District Court.

Background

Plaintiffs Merchant and Santiago are two of the original members of the singing group "The Teenagers," which was formed in 1955. Plaintiffs testified that in 1955 they jointly wrote the initial version of the song Fools. Frankie Lymon made a number of changes to the song when he subsequently joined the group, which then became known as "Frankie Lymon and The Teenagers." The jury found that Merchant, Santiago, and Lymon were co-authors of Fools. At the time, Lymon was 12 years old and Plaintiffs were each 15.

In 1956 the Teenagers recorded Fools for Gee Records, then owned and operated by George Goldner, now deceased. Plaintiffs testified that they relied upon Goldner to handle the formalities of copyrighting the song, and that Goldner informed them that only two of the three authors could be listed on the copyright. Subsequently, Goldner filed the Fools copyright with the Copyright Office in 1956, listing himself and Lymon as sole co-authors. The Levy Defendants maintain that Goldner was properly listed as an author because he was personally involved in writing and arranging Fools. The Levy Defendants also contend that Goldner was a co-author of Fools under the "work for hire" doctrine because, during the Fools recording session, a saxophone solo composed by a studio musician was incorporated into the song. The jury, however, found that Goldner was not an author of Fools.

Sometime in the 1950s Lymon agreed to let Goldner exploit Lymon's interest in the song. In 1968 Lymon died, survived by his wife Emira Lymon.

In 1964 defendant Morris Levy purchased Goldner's interest in several music companies, including the music publishing company that held the copyright for Fools. In a letter to the Copyright Office dated June 24, 1965, Goldner stated that Levy, rather than Goldner, had co-authored Fools with Lymon. The copyright registration was amended to reflect this statement and, thereafter, the copyright was held by Levy's company, Big Seven Music. 1

Although Fools became a hit and continues to be popular today (Diana Ross has recorded a popular version), Plaintiffs have never received any royalties from their claimed co-authorship of Fools.

Plaintiffs reached the age of majority in 1961. They testified that on several occasions in the 1960s they contacted Goldner, and then Levy, to inquire about royalty payments, but to no avail. The jury found that Goldner and Levy deliberately concealed from Plaintiffs the accrual of royalties. The jury also found, however, that the only period during which Plaintiffs did not know, and could not have known with the exercise of reasonable diligence, that royalties to which they were entitled had accrued lasted from 1955 to 1961, while Plaintiffs were underage.

Plaintiffs also testified that they were afraid of Levy and that this fear made them reluctant to press their claims. Santiago testified that Levy threatened him in 1969, and Merchant testified that Levy threatened to kill him when, in 1977, he inquired about royalties. Plaintiffs assert that Levy was closely affiliated with organized crime and connected to a number of violent incidents. Levy was convicted in the late 1980s on federal extortion charges and sentenced to ten years in prison. The jury found that Levy threatened Plaintiffs with physical force and that Plaintiffs reasonably refrained from commencing suit because of the threats during a period that began in 1969 and lasted until December 24, 1984. 2

Beginning in the late 1970s, Plaintiffs took various steps in pursuit of their claim, including hiring an attorney and investigator to look into the status of the copyright. Plaintiffs did not take formal legal action, however, until 1987.

A. Procedural History

Plaintiffs brought the instant Complaint against the Levy Defendants and Emira Lymon on October 7, 1987. 3 Plaintiffs asked for a declaration that they were co-owners with Lymon of the copyright to Fools and for an accounting of royalties. Plaintiffs also alleged copyright infringement, Sherman Act and Lanham Act violations, unfair competition, fraud and misappropriation, and negligence and breach of fiduciary duty. Before trial the District Court (Vincent L. Broderick, Judge) dismissed all claims against Emira Lymon, but allowed the action to proceed against the Levy Defendants.

By agreement of the parties, trial was held in part before a jury and in part before now-Chief Magistrate Judge Buchwald. The jury's findings, as already noted, focused on the issues of authorship, fraudulent concealment, and duress. The parties agreed that, based on the jury's findings, the Court would make final rulings on whether Plaintiffs were entitled to an ownership interest in the Fools copyright, and would decide issues relating to the statute of limitations, equitable estoppel, and laches. The Court was also to decide, as fact-finder, whether Plaintiffs were entitled to judgment on their copyright infringement Lanham Act, and common law unfair competition claims. 4

After the jury's verdict, the Levy Defendants argued in post-trial motions that they were entitled to a new trial on the co-authorship issue, and to judgment as a matter of law (a) that the doctrines of laches and equitable estoppel barred Plaintiffs' claims and (b) that Plaintiffs were not victims of duress.

The Court denied the Levy Defendants' motion for a new trial on the co-authorship issue, ruling that the jury's findings were well-supported. Merchant, 828 F.Supp. at 1058. The Court then granted judgment in favor of the Levy Defendants on the claims of copyright infringement, Lanham Act violations, and unfair competition. Id. at 1058-60.

The Court granted Plaintiffs' basic request for a declaration of copyright co-ownership, rejecting the three defenses advanced by the Levy Defendants, all based on the long delay in Plaintiffs' assertion of their claim.

1. Duress and Statute of Limitations. The Court interpreted the three-year statute of limitations, applicable to civil copyright actions, 17 U.S.C. § 507(b), as limiting Plaintiffs' recovery to damages accruing within three years of the filing of the suit, rather than as an absolute bar to Plaintiffs' cause of action. Merchant, 828 F.Supp. at 1056. The important question for the Court then became whether the statute of limitations had been tolled for any period before the filing of the suit, thereby allowing Plaintiffs to recover damages that accrued even prior to three years before the suit. Id.

The Court held that in order to toll a statute of limitations, "the duress experienced by the injured party must have been operating at the time the original cause of action arose and must be continuous." Id. at 1061. The Court then found that from 1961, the time the cause of action arose (after Plaintiffs' majority), until at least 1969, the time of the alleged threat to Santiago, there was no evidence of duress, and therefore Plaintiffs were not entitled to a toll of the statute of limitations. Id. at 1061-62. The Court also overturned the jury's finding that Plaintiffs' fear reasonably lasted from 1969 until December 1984. The Court did not identify a specific date beyond which Plaintiffs' fear reasonably could not last, but indicated that any coercive effects dissipated in the late 1970s and early 1980s, when Plaintiffs were publicly acknowledging that Levy had "bilked" them out of their royalties. Id. Since the claim of duress...

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