Frankel v. Stein and Day, Inc.

• Citation: 470 F. Supp. 209
• Decision Date: 08 May 1979
• Docket Number: No. 79 Civ. 520.,79 Civ. 520.
• Parties: Sandor FRANKEL and John Doe, a/k/a "Webster Mews", Plaintiffs, v. STEIN AND DAY, INCORPORATED, Defendant.
• Court: U.S. District Court — Southern District of New York

470 F. Supp. 209

Sandor FRANKEL and John Doe, a/k/a "Webster Mews", Plaintiffs, v. STEIN AND DAY, INCORPORATED, Defendant.

No. 79 Civ. 520.

United States District Court, S. D. New York.

May 8, 1979.

Sandor Frankel, New York City, pro se.

Monasch, Chazen & Stream, New York City, for defendant; Arnold C. Stream, New York City, of counsel.

LASKER, District Judge.

This suit results from a falling out between Sandor Frankel and Webster Mews (a pseudonym), authors of The Aleph Solution, and their publisher, Stein and Day, Inc. The authors seek damages and injunctive and declaratory relief against Stein and Day as a result of the latter's alleged infringement of their copyright and violation of a publishing agreement. Stein and Day counterclaims that the authors have breached the agreement and seeks damages. Both parties have moved for summary judgment.

On June 1, 1978, the authors entered into a written agreement with Stein and Day setting forth the terms under which The Aleph Solution was to be published. The agreement required the publisher: (1) to apply for a copyright to be held in the authors' names (¶ 2), (2) to take out a total of three advertisements publicizing the book (¶ 19), and (3) to pay the authors two-thirds of any signature payment for the paperback rights to the book (¶ 4). A rider to this last clause specified that:

"Time of payment of royalties and of rendering of accountings by publisher to Author is of the essence of this agreement. If any such payment is not timely made or if any such accounting is not timely rendered and if any such default shall continue for a period of 30 days following written notification by Agent to Publisher of such default, then at the option of Author all rights granted to Publisher under this agreement shall automatically revert to Author." (emphasis added)

The authors, in turn, were required to deliver two copies of their manuscript "complete and satisfactory to the Publisher" on or before June 20, 1978, time being deemed "of the essence." (¶ 8) The contract also contained the following provision:

"This agreement constitutes the whole agreement between the parties and may not be modified, altered, waived, amended, or changed except by an instrument in writing signed by both parties. This agreement shall be interpreted according to the laws of the State of New York." (¶ 19)

The complaint alleges that on or about September 18, 1978, Stein and Day entered into an agreement granting Jove Publications the paperback rights to The Aleph Solution and received in return a signature payment of $27,500. Although the authors have made written demand for the part of the payment to which they are entitled under their agreement with the publisher, they have not been paid. Accordingly, Frankel and Mews assert that all rights granted Stein and Day under the agreement have, pursuant to the terms of the rider to clause 4, reverted automatically to them but that the publisher is nevertheless continuing to sell, distribute and collect monies with respect to The Aleph Solution and "to otherwise infringe upon the copyright." Moreover, they allege that Stein and Day has breached an oral agreement to spend a minimum of $30,000. on advertisements for the book. The complaint seeks a mandatory injunction barring Stein and Day from holding itself out as having any interest in the book or "from otherwise infringing" the authors' copyright; a declaratory judgment that all rights in the book have reverted to the authors; and damages for infringement, for breach of the signature payment agreement, for breach of the oral advertising agreement, and for negligent promotion of the book.

Stein and Day does not dispute the facts set out above; however, it contends that they represent only half the story. The essential provision in the agreement, the publisher asserts, was that a satisfactory manuscript be submitted by June 20th to ensure that the book would be in the stores in time for the important Christmas market. Sol Stein, President of Stein and Day, states that the June 20th deadline was made a "mockery" by Frankel and Mews and that a manuscript was not submitted until August, destroying the publication schedule and substantially impairing Stein and Day's ability to recoup its investment. (Affirmation of Sol Stein, February 8, 1979, ¶ 10) Defendant also submits affirmations of other employees which assert, most forcefully, that the authors' unreasonable behavior further delayed publication. (Affirmations of Wallace Exman and Marilee Talman) According to Stein, the publisher has lost more than $25,000. on The Aleph Solution and the paperback agreement merely salvaged some of the loss. (Affirmation, ¶ 12) Accordingly, Stein and Day counterclaims for damages resulting from the authors' alleged breach and argues that it would be inequitable, in light of plaintiffs' conduct, to require it to turn over a substantial amount of the signature payment.

Stein and Day's Motion

Stein and Day moves for summary judgment dismissing the complaint under Rules 12, 19 and 56, Fed.R.Civ.P., on the grounds that (1) the court lacks subject matter jurisdiction over the lawsuit; (2) Jove, an allegedly indispensable party to the action, has not been joined; and (3) the plaintiffs' contractual claims are barred by the parol evidence rule and failure to allege a material breach of the publishing agreement.

The complaint specifies that this action arises under the federal copyright laws and that the court therefore has jurisdiction under 28 U.S.C. § 1338.¹ However, Stein and Day argues that the lawsuit is in reality an action to enforce a contract since, in its view, the infringement claim is dependent on an interpretation of the publishing agreement to determine whether there has been a forfeiture or reversion of the licensed rights. It argues that when a plaintiff must secure a judicial determination of its rights before it is entitled to relief under the copyright laws, no federal jurisdiction exists in the absence of diversity between the parties. See T. B. Harms Co. v. Eliscu, 339 F.2d 823 (2d Cir. 1964); Muse v. Mellin, 212 F.Supp. 315 (S.D.N.Y.1962); see also Luckett v. Delpark, 270 U.S. 496, 46 S.Ct. 397, 70 L.Ed. 703 (1926); Coditron Corp. v. AFA Protective Systems, Inc., 392 F.Supp. 158 (S.D.N.Y.1975).

However, Stein and Day is incorrect in characterizing the plaintiffs' infringement claim as being dependent on an interpretation of the publishing agreement. As the authors point out, under clause 2 of the agreement, the copyright has always been in the authors' name. Moreover, under the rider to clause 4, all rights in the book licensed to the publisher reverted automatically to the authors following Stein and Day's failure to advance the signature payment. Accordingly, this is not a case, such as those relied on by defendant, in which a "preliminary question arises unrelated to the copyright laws," Muse v. Mellin, supra, 212 F.Supp. at 316, or in which plaintiff "has sued to set the license aside, seeking recovery for unauthorized use only incidentally or not at all," T. B. Harms Co. v. Eliscu, supra, 339 F.2d at 825. Instead here the authors are entitled to seek immediate relief for infringement and, indeed, their complaint sets out as the very first form of relief requested an injunction to enjoin such infringement. Under these circumstances, copyright jurisdiction exists. Cohan v. Richmond, 86 F.2d 680 (1936) (per L. Hand, J.); Muse v. Mellin, supra, 212 F.Supp. 315; see also, Mailer v. RKO Teleradio Pictures, Inc., 332 F.2d 747 (2d Cir. 1964); Twentieth Century-Fox Film Corp. v. National Publishers, Inc., 294 F.Supp. 10 (S.D.N.Y.1968); 3 Nimmer on Copyright § 10.15, at 10-110 (1978).²

Stein and Day also asserts that plaintiffs are not entitled to "rescission" of the publishing agreement because the publisher's failure to pay two-thirds of the signature payment from Jove was not a material breach of the agreement. It relies on Nolan v. Sam Fox Publishing Co., Inc., 499 F.2d 1394 (2d Cir. 1974), in which the court held that a music company's failure to pay a composer 74% of the royalties due under an agreement was not a material breach and therefore did not justify rescission. Stein and Day argues that where, as here, the authors have been paid a $10,000. advance (said by defendant to be 35% of the total monies owed them), the book has been published and distributed, and paperback rights secured, the breach cannot be considered so substantial as to justify reversion to the authors of all rights under the agreement.

There are several significant factual differences between this case and Nolan which suggest that, if the standard set out in that case were applied here, the breach would in fact be found material. Nolan held that rescission is permitted when a breach is "`material and willful, or, if not willful, so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract.'" 499 F.2d at 1397. Whereas in Nolan, the court found that Fox's failure to pay royalties was the result of "`oversight, negligence and less than meticulous bookkeeping . . .'", id. at 1399, it is undisputed here that defendant's failure to pay the money in question was willful. Moreover, the contract in this case specifies that all rights revert automatically to the authors in the event the publisher fails to pay them their share of the signature payment. This unambiguous language is strong, if not conclusive, evidence that the parties considered that such a breach would be material and thus, that to deny rescission on this ground, would "`tend to defeat the object of the parties in making the contract.'" Indeed, since the plain language of the contract specifies that reversion "shall automatically" result upon the publisher's failure to perform the obligation in question here, we believe that the contract must be complied with literally and that notions of materiality are...