Capitol Records v. Mercury Record Corp.

• Citation: 109 F. Supp. 330
• Parties: CAPITOL RECORDS, Inc. v. MERCURY RECORD CORP.
• Decision Date: 26 September 1952
• Court: United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York

109 F. Supp. 330

CAPITOL RECORDS, Inc. v. MERCURY RECORD CORP.

United States District Court S. D. New York.

September 26, 1952.

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Arthur E. Garmaize, New York City, for plaintiff (Morris Einhorn, New York City, on the brief).

Paul J. Kern, New York City, for defendant (Bernard Colton, New York City, on the brief).

LEIBELL, District Judge.

This is an action for a declaratory judgment under Section 2201 of Title 28 U.S.C. The complaint alleges (paragraph 1) that—

"* * * there is an actual controversy now existing between the parties involving an agreement respecting the possession and the right to the use of certain matrices for the manufacture of phonograph records from which matrices the defendant is manufacturing phonograph records and is employing unfair methods of competition in the distribution of such phonograph records. * * *"

That there is diversity of citizenship and the statutory amount in controversy, and that both plaintiff and defendant are doing business in this district, is alleged in paragraphs 2 and 3. Plaintiff, in addition to a judgment declaring that it—

"is entitled to the possession and the use in the manufacture and distribution of phonograph records of matrices and their derivatives and duplicates of recording at any time and in any manner made by Telefunkenplatte, G.m.b.H., and to the use of the name in any combination of `Telefunken' in connection therewith,"

also seeks injunctive relief, the impounding of the matrices, derivatives, duplicates and copies, and that defendant be required to pay plaintiff damages and account for the profits of defendant's alleged illegal use of the matrices.

Defendant's answer contains denials and special defenses; also a counterclaim for an injunction, the impounding of plaintiff's matrices, duplicates and copies, for damages and an accounting of plaintiff's profits. After several pretrial hearings the attorneys agreed upon a stipulation of facts and stipulated as to the admissibility of a number of exhibits. The case was then submitted on the stipulation of facts and the exhibits. The controversy between the parties has arisen because each claims the right to manufacture and sell in this country certain phonograph records produced from matrices of recordings made by foreign artists for Telefunkenplatte, G.m.b.H. (hereinafter called Telefunken) during the Nazi regime in Germany.

After the German Nazis took over control of Czechoslovakia, Telefunken entered into an agreement with Ultraphon Actien Gesellschaft Fur Grammophon Industrie Und Handel of Prague (hereinafter referred to as Ultraphon) under which Ultraphon was authorized to manufacture phonograph records from certain Telefunken matrices, and sell the records within the territorial borders of Czechoslovakia (Ex. J). When Nazi Germany capitulated at the end of World War II, the property of Germans in Czechoslovakia was seized by the Government. In 1945 Czechoslovakia issued confiscation and nationalization decrees. Supplemental decrees specifically took over the matrices in the possession of Ultraphon which were later transferred to a Czechoslovakian instrumentality known as Gramophone. On November 6, 1947, Gramophone entered into two agreements which made available to Keynote Recordings, Inc. and defendant, Mercury Record Corporation, certain of the matrices of Telefunken recordings, so that the matrices could be used in the United States by defendant for the manufacture and sale of phonograph records.

Plaintiff, Capitol Records, Inc., entered into an agreement (Ex. S) with Telefunken on October 1, 1948, by which plaintiff acquired the right to import certain Telefunken matrices and manufacture therefrom phonograph records for sale in the United States of America and the Western Hemisphere. Plaintiff's agreement with Telefunken was executed with the approval of the Joint Export-Import Agency, Berlin Branch, United States Sector, where Telefunken is located.

The above is a general outline of the controversy between the parties. The important details will be selected from the stipulation of facts and the exhibits, and will be hereinafter discussed.

The defendant has raised, in its brief, the absence from the record herein of certain alleged indispensable parties—Telefunken, Gramophone, and the artists who made the recordings for Telefunken. This question—the alleged failure to join indispensable parties, Rule 12(b), Fed.Rules Civ. Proc. 28 U.S.C., was not raised by defendant's answer served April 25, 1949, or by any formal motion; but it was not thereby waived. Rule 12(h).

The artists are not indispensable parties. They assigned all their rights to Telefunken. The arrangement between Telefunken and the singer, instrumentalists, orchestras, bands, conductors and other artists are set forth in paragraphs (h), (i) and (j) of the stipulation of facts herein:

"(h) Prior to and since 1941, Telefunken, by agreements, engaged singers, instrumentalists, orchestras, bands, conductors and elocutionists and other artists of established reputation to sing, play, conduct and recite for sound recording purposes exclusively for Telefunken and to vest in Telefunken the exclusive right for all time to manufacture, distribute, sell and advertise, and to license the manufacture, distribution, sale and advertising in all parts of the world of phonograph records of such artists' interpretative performances together with the exclusive right to use in commerce and trade and for advertising purposes the name and photographs of such artists and to license such use.

"(i) Such agreements provide for the payment by Telefunken of varying sums of money as immediate consideration, or in addition to royalties or as annual guarantees upon royalties based upon the number of phonograph records containing the artists' interpretative performances manufactured or sold.

"(j) Telefunken entered into written agreements on dates and with artists as follows. The contracts are what they purport to be:"

Certain written agreements with the artists are Exhibits A to I of the group of exhibits, the admissibility of which has been stipulated under paragraph 4 of the pretrial order. The contracts with the artist, Erna Sack, (Exs. B, D) contained the provision: —

"You Erna Sack transfer and assign to us herewith, all your copyrights, author's rights and other rights vested in you on basis of your personal appearance for our recording purposes, including in particular the recordings and other mechanical devices made by us, without any restriction and for all countries. This transfer and assignment refers also to all rights which may be newly vested in you in the future, pursuant to any change or amendment of the laws."

The contract with Erich Kleiber, General Music Director (Ex. E) contained a similar provision. So did the agreement with Professor William Mengelberg (Ex. G); the agreement with Professor Igor Stravinsky (Ex. H); and the agreement with General Director Joseph Keilberth (Ex. I). Exhibits A, C and F are unavailable, having been lost during the war.

As to Telefunken and Gramophone, I believe they are not indispensable parties. Their rights can be reserved in the decree to be entered herein. Rule 19(b); Marks Music Corp. v. Jerry Vogel Music Co., 2 Cir., 140 F.2d 268, 270. The judgment to be rendered herein will not under Rule 19(b) "affect the rights or liabilities of absent persons." This in effect was what the old Thirty-Ninth Equity Rule provided. It is discussed at some length in an opinion by Judge Parker of the Fourth Circuit in Oxley v. Sweetland, 94 F.2d 33.

Before the Federal Rules of Civil Procedure went into effect in September 1938, the courts sought to adjudicate cases in the absence of interested parties who could not be brought in. Mr. Justice Sutherland in Bourdieu v. Pacific Western Oil Co., 299 U.S. 65, 57 S.Ct. 51, 53, 81 L.Ed. 42 (decided November 1936) stated the rule in that respect as follows:

"The rule is that if the merits of the cause may be determined without prejudice to the rights of necessary parties, absent and beyond the jurisdiction of the court, it will be done; and a court of equity will strain hard to reach that result. West v. Randall, Fed.Cas. No. 17,424, 2 Mason 181, 196 (opinion by Mr. Justice Story); Cole Silver Mining Co. v. Virginia & G. H. W. Co., Fed.Cas. No. 2,990, 1 Sawy. 685, 689 (opinion by Mr. Justice Field); Story's Equity Pleadings (8th Ed.) §§ 77, 96. And see Russell v. Clark's Executors, 7 Cranch 69, 98, 3 L. Ed. 271; Elmendorf v. Taylor, 10 Wheat. 152, 167, 168, 6 L.Ed. 289. Cf. Equity Rule 39.

"We refer to the rule established by these authorities because it illustrates the diligence with which courts of equity will seek a way to adjudicate the merits of a case in the absence of interested parties that cannot be brought in."

Gramophone has sought the jurisdiction of this Court by instituting a suit (Civil 58-239¹) on May 29, 1950, against Mercury, claiming that Mercury has breached its contract with Gramophone in various ways. In that suit Gramophone seeks damages, an accounting, an injunction and other relief. That suit is still pending. If Gramophone wishes to intervene in the present suit brought by Capitol against Mercury, it may do so. But Gramophone's failure to submit itself to the jurisdiction of this Court in the suit brought by Capitol should not be permitted to tie the hands of the Court so that the plaintiff Capitol may not be accorded legal and equitable relief against Mercury for the latter's unfair competition. If Mercury is committing a tort by competing unfairly with Capitol, Gramophone has made Mercury's conduct possible by entering into a contract with Mercury and authorizing Mercury to do the very thing of which Capitol complains. Gramophone not only authorized it, but made the unfair competition possible by supplying Mercury with the matrices from which the phonograph records were made and...