Bucciarelli-Tieger v. Victory Records, Inc.

• Decision Date: 01 March 2007
• Docket Number: No. 06 C 4258.,06 C 4258.
• Citation: 488 F.Supp.2d 702
• Parties: Eron BUCCIARELLI-TIEGER, an individual; et al., Plaintiffs, v. VICTORY RECORDS, INC., an Illinois corporation; et al., Defendants.
• Court: U.S. District Court — Northern District of Illinois

488 F.Supp.2d 702

Eron BUCCIARELLI-TIEGER, an individual; et al., Plaintiffs, v. VICTORY RECORDS, INC., an Illinois corporation; et al., Defendants.

No. 06 C 4258.

United States District Court, N.D. Illinois, Eastern Division.

March 1, 2007.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Anthony George Stamato, Robert McPherson Spalding, Kaye Scholer LLC, Chicago, IL, Rhonda R. Trotter, Kaye Scholer, LLP, Los Angeles, CA, for Plaintiffs.

Christopher Scott Griesmeyer, Christopher M. Heintskill, Levenfeld Pearlstein, Chicago, IL, Robert S. Meloni, Ronald W. Adelman, Robert S. Meloni, PC, New York City, for Defendants.

MEMORANDUM OPINION AND ORDER

MORAN, Senior District Judge.

Plaintiffs, individually and collectively, as Hawthorne Heights ("HH"), a musical group, filed this action on August 7, 2006, against defendants, Victory Records, a record company, its CEO, Anthony Brummel, and the company's publishing arm, Another Victory, alleging willful copyright and trademark violations; unfair competition, in violation of the Lanham Act; and several state law claims. The complaint also seeks a declaratory judgment as to the nature of the agreement between plaintiffs and defendants. On August 28, 2006, plaintiffs filed a motion pursuant to Federal Rule of Civil Procedure 42(b), to bifurcate the declaratory judgment claim from the others, and for expedited discovery as to that claim. Defendants filed their answer on September 8, 2006, along with several counterclaims. On September 22, 2006, defendants filed a motion to dismiss pursuant to Fed.R.Civ.P. 12(c). Preliminary determinations were made on this motion by Judge Shadur sitting in our stead on October 18, 2006 (see def. mo. for ruling, exh. B) On January 10, 2007, we offered further guidance, without ruling (docket no. 55). Today we rule in full on defendants' motion, granting it in part and denying it in part.

BACKGROUND

The following facts are taken generally from the pleadings. Where the facts are contested, we draw, where possible, from the exhibits accompanying the pleadings. Plaintiffs are all residents of Ohio and comprise a musical band called Hawthorne Heights. On or about December 11, 2003, HH entered into an agreement with defendants — which was amended on or about April 29, 2004 (collectively referred to as "the agreement") — for a four-album deal, with irrevocable consecutive options granted to defendants for the second, third and fourth albums. Plaintiffs were to be paid royalties corresponding to album sales, and the agreement included a number of other terms, including territory, publishing, recording advances, recoupable costs, merchandising, touring, and accounting procedures. Pursuant to the agreement, HH delivered both audio and visual records to defendants for two albums which were released on June 8, 2004, and February 28, 2006, respectively. A DVD was released in or about January 2006.

Prior to the release of the second album in February 2006, a member of defendants' staff sent an e-mail to the street team for plaintiffs' album.¹ This e-mail encouraged the team members to move plaintiffs' album to more prominent locations in record stores, and to move a competing artist's album to less prominent locations — or hiding copies of such album. On March 1, 2006, the staff member sent another e-mail to the street team telling them the previous e-mail had been a joke.

On August 3, 2006, plaintiffs sent a letter to defendants, purporting to terminate the agreement, including the purported termination of any licenses defendants possessed for plaintiffs' recordings. In plaintiffs' letter, they alleged that they were permitted to terminate the agreement and the licenses because defendants had (1) failed to account for certain royalties under the agreement, applied wrong percentages to royalty rates and mis-charged advertising costs; (2) engaged in outrageous conduct by way of the street team e-mail; (3) drafted a "Manifesto" which was falsely attributed to the band, portraying it as in a war with artists in other genres; (4) physically threatened professional music industry figures, as well as HH's personal manager; (5) damaged HH's relationship with producers and other industry professionals by failing to account for or pay royalties under the agreement; and (5) intentionally interfered with HH's relationship with retailers with respect to HH merchandise. Plaintiffs' letter purported to rescind the agreement. Subsequent to receipt of this letter, defendants continued to manufacture and market plaintiffs' albums. On August 7, 2006, plaintiff filed the instant action.

Plaintiffs' complaint alleges that the agreement between plaintiffs and defendants was a non-exclusive agreement for performance, granting defendants a nonexclusive implied license to manufacture and market plaintiffs' albums, and the use of plaintiffs' name. Plaintiffs allege that the duty to perform, and the license, were nullified when plaintiffs sent their letter of termination because the agreement and the license were terminable at-will. Alternatively, plaintiffs allege that the agreement and license were non-exclusive, making the license terminable at the will of the licensor. Plaintiffs seek a declaratory judgment with regards to the characterization of the agreement and any licenses found therein. Plaintiffs allege that since the license was terminated, defendants infringed plaintiffs' copyright and trademark when they continued to market plaintiffs' albums and use plaintiffs' name in violation of 17 U.S.C. § 501 et seq. and 15 U.S.C. § 1125(a). Plaintiffs further allege defendants engaged in unfair competition through these same actions, in violation of the Lanham Act. 15 U.S.C. § 1125(a). Plaintiffs also allege a number of state law claims arising out of defendants' conduct, including the tort of false light, fraud, interference with business relations, rescission and unjust enrichment.

On August 28, 2006, plaintiffs filed a motion to bifurcate claims and expedite discovery with regard to the declaratory judgment claim. Defendants filed their answer and counterclaims on September 8, 2006, and filed their motion to dismiss pursuant to Rule 12(c) on September 22, 2006. Because plaintiffs sought expedited ruling on the declaratory judgment, the motion to dismiss was set before Judge Shadur, sitting in this court's stead, on October 18, 2006. Judge Shadur orally dismissed Count IX for declaratory judgment to the extent that it was premised upon the agreement being terminable at-will (def. mo. for ruling, exh. B) — he held that a reading of the agreement negated such a finding. He dismissed Counts I and II for copyright and trademark infringement to the extent that they, too, were based on the agreement being terminable at-will. Plaintiffs then filed a motion for reconsideration or clarification on October 31, 2006. On November 7, 2006, Judge Shadur orally clarified his order, stating that he had not dismissed Counts I, II and IX in their entirety, just to the extent they relied on the agreement being terminable at-will (def. mo. to rule, exh. C). He clarified that he was not ruling as to the exclusivity of the agreement or on a termination-for-cause theory.

On January 10, 2007, knowing we would be absent from court during the month of January, we offered guidance to the parties regarding the motion to dismiss, but did not make any substantive rulings (docket no. 55). We did, however, deny plaintiffs' motion to bifurcate claims and expedite discovery. Id. We now take up the portions of the motion to dismiss that have not already been addressed.

ANALYSIS

This court possesses subject matter jurisdiction over this action pursuant to 28 U.S.C. §§ 1331 and 1338(a) and (b). We have supplemental jurisdiction over the state law claims pursuant to 28 U.S.C. § 1367(a) because those claims arise out of a common nucleus of operative fact. United Mine Workers v. Gibbs, 383 U.S. 715, 724, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966). We also have subject matter jurisdiction pursuant to 28 U.S.C. § 1332 — plaintiffs are residents of Ohio, defendants are residents of Illinois, and the amount in controversy exceeds $75,000,

The standard of review for motions to dismiss made pursuant to Rule 12(c), is the same as for Rule 12(b)(6). Olson v. Wexford Clearing Serv. Corp., 397 F.3d 488, 490 (7th Cir.2005). Dismissal is proper only when it appears beyond doubt that plaintiff can prove no set of facts in support of his or her claim that would entitle him or her to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). The well-pleaded allegations of the complaint must be accepted as true, and the court must draw all reasonable inferences in favor of" plaintiff. McMillan v. Collection Prof'ls, Inc., 455 F.3d 754, 758 (7th Cir.2006). However, a copy of any written instrument which is an exhibit to a complaint is considered to be a part of the pleadings (Rule 10(c)), and as a general principle, when a written instrument contradicts allegations in the complaint to which it is attached, the exhibit trumps the allegations. Graue Mill Dev. Corp. v. Colonial Bank & Trust Co., 927 F.2d 988, 991 (7th Cir.1991). Furthermore, we are not obliged to accept as true plaintiffs' legal conclusions or unsupported conclusions of fact. County of McHenry v. Ins. Co. of the West, 438 F.3d 813, 818 (7th Cir.2006).

Count IX — Declaratory Judgment

The declaratory judgment plaintiffs seek in Count IX can be broken down into two parts. First, plaintiffs seek a judgment that the agreement does not bind them to record exclusively for defendants. Second, plaintiffs seek a judgment that they own the copyrights to the first two albums and that any license they may have granted defendants to those albums by way of the agreement was non-exclusive and, therefore, terminable at any time. We take each of these parts in turn.

Exclusivity of Services

Defendants argue that the agreement requires plai...