Contemporary Mission, Inc. v. Famous Music Corp.
| Decision Date | 18 May 1977 |
| Docket Number | D,Nos. 575,616,s. 575 |
| Citation | 557 F.2d 918 |
| Parties | 2 Fed. R. Evid. Serv. 16 CONTEMPORARY MISSION, INC., Plaintiff-Appellee-Cross-Appellant, v. FAMOUS MUSIC CORPORATION, Defendant-Appellant-Cross-Appellee. ockets 76-7403, 76-7440. |
| Court | U.S. Court of Appeals — Second Circuit |
William B. Lawless, New York City (John F. Triggs, Hawkins, Delafield & Wood, New York City, of counsel), for defendant-appellant.
William D. O'Reilly, Windham, N. H., for plaintiff-appellee.
Before MANSFIELD, VAN GRAAFEILAND and MESKILL, Circuit Judges.
This is an appeal by Famous Music Corporation ("Famous") from a verdict rendered against it in favor of Contemporary Mission, Inc. ("Contemporary"), in the United States District Court for the Southern District of New York, after a jury trial before Judge Richard Owen. Contemporary cross-appeals from a ruling which excluded testimony concerning its prospective damages. The dispute between the parties relates to Famous' alleged breach of two contracts.
Contemporary is a nonprofit charitable corporation organized under the laws of the State of Missouri with its principal place of business in Connecticut. It is composed of a small group of Roman Catholic priests who write, produce and publish musical compositions and recordings. 1 In 1972 the group owned all of the rights to a rock opera entitled VIRGIN, which was composed by Father John T. O'Reilly, a vice-president and member of the group. Contemporary first became involved with Famous in 1972 as a result of O'Reilly's efforts to market VIRGIN.
Famous is a Delaware corporation with its headquarters in the Gulf k Western Building in New York City. It is a wholly-owned subsidiary of the Gulf k Western Corporation, 2 and, until July 31, 1974, it was engaged in the business of producing musical recordings for distribution throughout the United States. Famous' president, Tony Martell, is generally regarded in the recording industry as the individual primarily responsible for the successful distribution of the well-known rock operas TOMMY and JESUS CHRIST SUPERSTAR.
The relationship between Famous and Contemporary was considerably more harmonious in 1972 than it is today. At that time, Martell thought he had found, in VIRGIN, another TOMMY or JESUS CHRIST SUPERSTAR, and he was anxious to acquire rights to it. O'Reilly, who was encouraged by Martell's expertise and enthusiasm, had high hopes for the success of his composition. On August 16, 1972, they executed the so-called "VIRGIN Recording Agreement" ("VIRGIN agreement") on behalf of their respective organizations.
The terms of the VIRGIN agreement were relatively simple. Famous agreed to pay a royalty to Contemporary in return for the master tape recording of VIRGIN and the exclusive right to manufacture and sell records made from the master. The agreement also created certain "Additional Obligations of Famous" which included, inter alia : the obligation to select and appoint, within the first year of the agreement, at least one person to personally oversee the nationwide promotion of the sale of records, to maintain contact with Contemporary and to submit weekly reports to Contemporary; the obligation to spend, within the first year of the agreement, no less than $50,000 on the promotion of records; and the obligation to release, within the first two years of the agreement, at least four separate single records from VIRGIN. The agreement also contained a non-assignability clause which is set out in the margin. 3
On May 8, 1973, the parties entered into a distribution contract which dealt with musical compositions other than VIRGIN. This, the so-called "Crunch agreement," granted to Famous the exclusive right to distribute Contemporary's records in the United States. Famous agreed to institute a new record label named "Crunch," and a number of records were to be released under it annually. Contemporary agreed to deliver ten long-playing records and fifteen single records during the first year of the contract. Famous undertook to use its "reasonable efforts" to promote and distribute the records. Paragraph 15 of the Crunch agreement stated that a breach by either party would not be deemed material unless the non-breaching party first gave written notice to the defaulting party and the defaulting party failed to cure the breach within thirty days. The notice was to specify the nature of the alleged material breach. The contract prohibited assignment by Contemporary, but it contained no provision relating to Famous' right to assign.
Although neither VIRGIN nor its progeny was ever as successful as the parties had originally hoped, the business relationship continued on an amicable basis until July 31, 1974. On that date, Famous' record division was sold to ABC Records, Inc. (ABC). When O'Reilly complained to Martell that Famous was breaking its promises, he was told that he would have to look to ABC for performance. O'Reilly met with one of ABC's lawyers and was told that ABC was not going to have any relationship with Contemporary. On August 21, 1974, Contemporary sent a letter to Famous pursuant to paragraph 15 of the Crunch agreement notifying Famous that it had "materially breached Paragraph 12, 4 among others, of (the Crunch) Agreement in that (it had) attempted to make a contract or other agreement with ABC-Dunhill Record Corporation (ABC Records) creating an obligation or responsibility in behalf of or in the name of the Contemporary Mission." This lawsuit followed.
Contemporary brought this action against several defendants and asserted several causes of action. By the time the case was submitted to the jury the only remaining defendant was Famous and the only remaining claims were that (1) Famous had failed to adequately promote the VIRGIN and Crunch recordings prior to the sale to ABC, (2) Famous breached both the VIRGIN and Crunch agreements when it sold the record division to ABC, and (3) Famous breached an oral agreement to reimburse Contemporary for its promotional expenses. The latter claim has no relevance to this appeal.
The district judge submitted the case to the jury in two parts: the first portion as to liability and the second concerning damages. The court's questions and the jury's answers as to liability and damages are set forth below:
Liability Questions
Yes.
Yes.
Yes. 5
4. Did plaintiff establish by a fair preponderance of the credible evidence that Famous failed to use "its reasonable efforts consistent with the exercise of sound business judgment" to promote the records marketed under the Crunch label?
No.
5. Did plaintiff establish by a fair preponderance of the credible evidence that there was a refusal by ABC to perform the Crunch contract and promote plaintiff's music after the assignment?
Yes.
6. If your answer is "yes" to either 4 or 5 above, did such a breach or breaches of the Crunch agreement cause plaintiff any damage?
Yes.
7. Did Tony Martell, on behalf of Famous, in talking to any member of plaintiff, make any agreement to reimburse plaintiff for the expense of its members promoting their music around the country?
Yes.
Damage Questions
$68,773.
$104,751.
$21,000. 6
$16,500.
On this appeal, Famous attacks the verdict on several grounds. Their first contention is that the evidence was insufficient to support the jury's response to liability question number 1. Their second contention is that the jury's response to liability question number 4 precludes a recovery for non-performance of the Crunch agreement. Their third contention is that Contemporary failed to comply with the notice provision of the Crunch agreement. Their final contention is that Contemporary is estopped from suing for a breach of the Crunch agreement. We find none of these arguments persuasive.
Judge Owen charged the jury as a matter of law that Famous breached the VIRGIN agreement by assigning it to ABC without getting from ABC a written agreement to be bound by the terms of the VIRGIN agreement. A reading of paragraph 29 of the agreement 7 reveals that that charge was entirely correct, and Famous does not challenge it on this appeal. Famous vigorously contends, however, that the jury's conclusion, that it had failed to adequately promote VIRGIN prior to the sale to ABC, is at war with the undisputed facts and cannot be permitted to stand. O'Connor v. Pennsylvania R.R. Co., 308 F.2d 911, 915 & n.5 (2d Cir. 1962). In particular they argue that they spent the required $50,000 8 and appointed the required overseer for the project. 9 The flaw in this argument is that its focus is too narrow. The obligations to which it refers are but two of many created by the VIRGIN agreement. Under the doctrine of Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88, 118 N.E. 214 (1917), Famous had an obligation to use its reasonable efforts to promote VIRGIN on a nationwide basis. That obligation could not be satisfied merely by technical compliance with the spending and appointment requirements of paragraph 14 of the agreement. Even assuming that Famous complied fully with those requirements, there was evidence from which the jury could find that Famous failed to...
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