Thomas v. Gusto Records, Inc.
| Citation | 939 F.2d 395 |
| Decision Date | 13 September 1991 |
| Docket Number | Nos. 90-5988,90-6445,s. 90-5988 |
| Parties | B.J. THOMAS; Gene F. Pitney; Shirley Owens Alston; Doris Coley Jackson; Beverly Lee; Vernon McFadden, Jr., Plaintiffs-Appellees, v. GUSTO RECORDS, INC.; G.M.L., Inc., Defendants-Appellants. |
| Court | United States Courts of Appeals. United States Court of Appeals (6th Circuit) |
Ira G. Greenberg (argued), Summit, Robins & Feldesman, New York City, Samuel D. Lipshie, Boult, Cummings, Conners & Berry, Nashville, Tenn., for plaintiffs-appellees.
Jay S. Bowen (argued), Nancy A. Min, J. Mark Tipps, Bass, Berry & Sims, Grant Smith, Smith & Thompson, Nashville, Tenn., for defendants-appellants.
Before KENNEDY and MARTIN, Circuit Judges; and ENGEL, Senior Circuit Judge.
All the plaintiffs in this diversity action, except for Vernon McFadden who is the widower and personal representative of Addie Harris McFadden, have the unusual status of being successful popular musicians. They brought suit against Gusto Records, Inc. and G.M.L., Inc. in this Tennessee diversity action seeking royalties from the use of master recordings of their songs. Essentially, this is a breach of contract action. The case was tried without a jury and the district court awarded the plaintiffs a total of $843,209.89 plus prejudgment interest for failure to pay royalties due. Gusto and G.M.L. have appealed this judgment. The defendants do not dispute they are liable; they merely contend the amount owed is far less than the amount awarded by the district court. For the reasons which follow, we affirm.
As the district court noted, the musicians in this suit have achieved a high degree of success in "popular music." B.J. Thomas is most famous for his recording of the theme song for the movie "Butch Cassidy and the Sundance Kid," "Rain Drops Keep Fallin' on My Head." Burt Bacharach and Hal Davis wrote the song originally for Bob Dylan to record. Thomas also had a number one hit with "Another Somebody Done Somebody Wrong Song." Among his accolades are eleven gold records, two platinum albums, and five Grammy awards.
Shirley Owens Alston, Doris Coley Jackson, Beverly Lee and Addie Harris McFadden, members of a singing group known as the Shirelles, had their first hit, "I Met Him on a Sunday," in 1958 while they were still attending high school in New Jersey. One year later the group was successful with "Dedicated to the One I Love." Among their accolades are twelve top ten hits, including two number ones: "Soldier Boy" and "Will You Still Love Me Tomorrow," a song recently repopularized by its use in the movie "Dirty Dancing."
Gene Pitney's most successful song, "Only Love Can Break a Heart," reached number two on the popular charts in 1962. Pitney was especially successful singing movie theme songs, "A Town Without Pity" and "(The Man Who Shot) Liberty Valance," and writing songs for other popular stars, including "Rubber Ball" for Bobby Vee, "Hello Mary Lou" for Ricky Nelson, and "He's a Rebel" for the Crystalls.
As the district court aptly noted, record companies transferred the master recordings of the plaintiffs' songs through "mesne conveyances," until G.M.L. purchased them in the mid-1980's. G.M.L. owned the masters, while Gusto sold copies of them for the retail trade. Mr. Gayron "Moe" Lytle is the president, sole shareholder, and sole director of Gusto and G.M.L.
Gusto and G.M.L. concede that an owner of the master recordings incurs any royalty obligations that arise during its ownership. Defendants make this concession after having profited throughout most of the 1980's from sales and licensure of the plaintiffs' masters without much regard to this obligation. In fact, this stance of neglecting the plaintiffs' rights was consistent with most record companies who owned the plaintiffs' master recordings through much of the 1970's and throughout the 1980's.
The district court found after a five day trial that Pitney should recover $187,762.44 plus interest, that Thomas should recover $177,299.77 plus interest, and that each member of the Shirelles should recover $119,537.07 plus interest. In reaching these amounts the district court accepted, with minor exceptions, the plaintiffs' expert's testimony on custom and usage in the music industry. Most importantly, the court accepted his testimony that, absent a contractual provision to the contrary, the musician receives half of the fees received from licensing the masters to unaffiliated third parties. The trial court's decision was also based in large part upon the unseemly record keeping practices of Gusto, which forever prevent an exact determination of royalties earned by the plaintiffs. Gusto and G.M.L. timely filed this appeal.
The defendants assert the trial court erred on numerous grounds. First, they argue that clear language in the contracts of B.J. Thomas and the Shirelles prevents the consideration of evidence concerning industry custom and practice in determining royalties from domestic licensing. Thomas and the Shirelles entered into contracts with Scepter Records, Inc. in 1968 and 1961, respectively. The provisions of the two contracts in question are identical, except as to the royalty rate, and provide the following:
4. For the rights herein granted and the service to be rendered by you we shall pay you as royalty a sum equal to [4% for the Shirelles] [5% for Thomas] of the net retail list price in the United States of America based on 90% of all double-faced records manufactured and sold by us and paid for, on both faces of which are embodied only the selections recorded hereunder; and one-half of the respective amounts of such royalties of 90% of all records manufactured and sold by us and paid for on only one face of which are embodied only the selections recorded hereunder. In the case of phonograph records and other copies manufactured and sold in foreign countries by any subsidiary, affiliate, licensee or nominees to whom we have supplied a copy or duplicate of a master or matrix or tape of any such recordings, we will pay you one-half of the United States of America royalty rate out of all net license fees paid and received by us for phonograph records and other copies so manufactured and sold.
....
8. All recordings and all records and reproductions made therefrom together with the performances embodied therein, shall be entirely our property, free of any claims whatsoever by you or any person deriving any rights or interest from you. Without limitation of the foregoing, we shall have the right to make phonograph records, tape recordings or other reproductions of the performances embodied in such recordings by any method now or hereafter known, and to sell and deal in the same under any trade mark or trade names or labels designated by us, or we may at our election refrain therefrom.
....
Gusto and G.M.L. assert that paragraph four is unambiguous with regard to royalties from domestic licensing, arguing that the "obvious implication" of silence on the issue is that the parties agreed there would be no such royalties. We do not find that implication so obvious.
Both parties agree that New York law should be applied to resolve this issue. The resolution of any ambiguity in a written contract is to be determined by the court as a matter of law. Schuler-Haas Electric Co. v. Aetna Casualty & Surety Co., 40 N.Y.2d 883, 389 N.Y.S.2d 348, 357 N.E.2d 1003 (1976). Not only are these contracts silent on many issues, e.g. domestic licensing royalties, many of the provisions which the contracts do set forth are perfectly obscure. Paragraph eight of both contracts, for example, if read independently, could be interpreted as a provision in which Thomas and the Shirelles signed away any and all rights. Indeed, the defendants assert this is what the paragraph means with respect to royalties from domestic licensing. Without an integration clause or more evidence in the documents supporting this harsh interpretation, we cannot accept this reading of the contracts. Because of the ambiguities in these contracts, we believe the district court properly looked beyond the written contract to determine the true intentions of the parties.
New York cases have consistently held that custom may be used to clarify ambiguities or to "fill gaps" in an agreement. E.g., Tannenbaum v. Zeller, 552 F.2d 402, 414 (2d Cir.), cert. denied, 434 U.S. 934, 98 S.Ct. 421, 54 L.Ed.2d 293 (1977); Franklin Research & Dev. Corp. v. Swift Elec. Supply Co., 340 F.2d 439, 443 n. 2 (2d Cir.1964). Gusto asserts these cases are inapposite because custom and practice cannot be used to contradict the express terms of the contracts. See, e.g., Western Union Tel. Co. v. American Communications Ass'n, 299 N.Y. 177, 86 N.E.2d 162 (1949). The problem with this argument is that the contracts in question are silent with respect to royalties from domestic licensing; there are no express terms in the contracts explaining the parties' intentions on this issue. Paragraph 4 sets forth the royalty rate on the record company's own sales and on foreign sales by "any subsidiary, affiliate, licensee or nominee[ ]...." Paragraph 8 merely establishes the record company's title free of any claim to ownership by the artists. Because no provision in the contracts of B.J. Thomas or the Shirelles pertains to royalties from domestic licensing income which could be contradicted by incorporating into the contracts the custom in the music industry with respect to that issue, the district court properly accepted the fifty percent royalty rate as the rate intended by the parties.
Gusto and G.M.L. next argue that the district court incorrectly calculated the royalty rate for foreign license income. They assert that the royalty rate designated for foreign sales by "subsidiar[ies], affiliate[s], licensee[s], or nominees" set forth in paragraph four dictates a much lower rate than the fifty percent rate...
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