Mellencamp v. Riva Music Ltd.

• Decision Date: 02 November 1988
• Docket Number: No. 87 Civ. 6207 (KC).,87 Civ. 6207 (KC).
• Citation: 698 F. Supp. 1154
• Parties: John J. MELLENCAMP, p/k/a John Cougar Mellencamp, Plaintiff, v. RIVA MUSIC LTD., Riva Music, Inc., G.H. Music, Ltd., G.H. Music, Inc., and Avir Music, Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

698 F. Supp. 1154

John J. MELLENCAMP, p/k/a John Cougar Mellencamp, Plaintiff, v. RIVA MUSIC LTD., Riva Music, Inc., G.H. Music, Ltd., G.H. Music, Inc., and Avir Music, Inc., Defendants.

No. 87 Civ. 6207 (KC).

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

November 2, 1988.

Elizabeth McNicoll, Stewart Levy, Parcher Arisohn & Hayes, Inc., New York City, for plaintiff.

Jane Stevens, Jonathan Davis, Gold, Farrell & Marks, New York City, for defendants.

OPINION AND ORDER

CONBOY, District Judge:

Plaintiff John J. Mellencamp, professionally known as John Cougar Mellencamp, is a songwriter, performer, and recording artist who has enjoyed enormous success in recent years. Defendants (collectively "the Riva companies") are affiliated corporations owned and/or controlled by William A. Gaff. On May 12, 1977, Mellencamp entered into a written publishing agreement with defendant G.H. Music, Ltd. Pursuant to the 1977 agreement, Mellencamp assigned to G.H. Music the worldwide copyrights in and to the compositions to be authored by him during the term of the agreement. The 1977 agreement was modified by a written agreement, dated February 28, 1979, and by letter agreement, dated February 21, 1980. On June 15, 1981, John Cougar, Inc. entered into a written publishing agreement with defendant Riva Music, Ltd. whereby John Cougar, Inc. assigned Mellencamp's songwriting and composing services and copyrights to Riva. On June 1, 1983, Mellencamp entered into a third publishing agreement with defendant Riva Music, Inc. Finally, by written agreement dated July 26, 1985, among Riva Music, Inc., Riva Music, Ltd., G.H. Music, Ltd, Mellencamp, and John Cougar Inc., each of the prior publishing agreements was amended in certain respects. In exchange for the assignment of the copyrights, Mellencamp received a percentage of the royalties earned from the exploitation of his music.

By virtue of the publishing agreements, according to the complaint, the Riva companies became fiduciaries for Mellencamp's interests. In his first and second claims, Mellencamp alleges that defendants breached their fiduciary duties by failing to actively promote his songs and to use their best efforts to obtain all the monies rightfully due him from third parties. In his third claim, Mellencamp contends that the Riva companies breached the various publishing agreements controlling their relationship by consistently underreporting royalties due him and by failing to timely render royalty statements and payments. In his fourth and final claim, Mellencamp contends that he entered into a binding agreement with the Riva companies pursuant to which the defendants agreed to release him from all obligations under the publishing contracts and to return all the rights to and in his musical compositions in exchange for $3 million dollars. This agreement was reached, according to plaintiff, at a luncheon meeting in a New York City restaurant among Sigmund Balaban, Mellencamp's accountant and advisor, William Gaff, and Milton Marks, Gaff's attorney. Both sides agree that the sale of the Riva companies' rights in Mellencamp's compositions was discussed, at least in general terms, at this meeting. The parties are in sharp dispute, however, over the legal consequences of their discussions.

Defendants now move pursuant to Rule 12(b)(6) to dismiss the complaint on the ground that it fails to state any valid claim for relief. Specifically, defendants contend 1) that the first two claims fail as a matter of law because no fiduciary duties are owed by a publisher to an author under a publishing agreement 2) that the third claim fails to specify which of the publishing agreements were breached, who the parties to the agreements were, and which provisions of the agreements were breached, and also fails to include a necessary party, and 3) that the fourth claim must be dismissed because the enforcement of an oral agreement to transfer copyrights is barred by § 204(a) of the Copyright Act and/or the New York Uniform Commercial Code statute of frauds § 1-206(1). In the alternative, defendants argue that they are entitled to summary judgment dismissing the fourth claim on the ground that the parties did not intend the alleged oral agreement to be binding.

ANALYSIS

I. Fiduciary Duties

Under New York law, the existence of fiduciary obligations in a particular relationship cannot be determined by recourse to fixed formulas or precedents:

Broadly stated, a fiduciary relationship is one founded upon trust or confidence reposed by one person in the integrity and fidelity of another. It is said that the relationship exists in all cases in which influence has been reposed and betrayed. The rule embraces both technical fiduciary relations and those informal relations which exist whenever one man trusts in, and relies upon, another (see Mobil Oil corp. v. Rubenfeld, 72 Misc.2d 392, 399-400, 339 N.Y.S.2d 623, affd. 77 Misc.2d 962, 357 N.Y.S.2d 589, revs. on other grounds 48 A.D.2d 428, 370 N.Y.S.2d 943). Such a relationship might be found to exist, in appropriate circumstances between close friends (see Cody v. Gallow, 28 Misc.2d 373, 214 N.Y. S.2d 127) or even where confidence is based upon prior business dealings (see Levine v. Chussid, 31 Misc.2d 412, 221 N.Y.S.2d 311).

Penato v. George, 52 A.D.2d 939, 942, 383 N.Y.S.2d 900, 904-05 (2d Dep't 1976). Notwithstanding this broad rule, defendants, relying on Van Valkenburgh, Nooger & Neville, Inc. v. Hayden Publishing Co., 30 N.Y.2d 34, 330 N.Y.S.2d 329, 281 N.E.2d 142 (1972), cert. denied, 409 U.S. 875, 93 S.Ct. 125, 34 L.Ed.2d 128 (1972), argue that the relationship between an author and a publisher can never be a fiduciary relationship. Van Valkenburgh does not support this proposition.

There, a publisher and an author entered into a written agreement which provided, inter alia, that the publisher was obligated to use its best efforts to promote the author's books. Id., 30 N.Y.2d at 43, 330 N.Y.S.2d at 331, 281 N.E.2d at 144. The agreement also provided that the author would receive a 15% royalty on all books sold. Id. The trial court found that the publisher did not use its best efforts to promote the books, the publisher occupied a fiduciary relationship to the author, and the publisher failed to act in good faith in that relationship. Id. at 44, 330 N.Y.S.2d at 332, 281 N.E.2d at 144. On appeal, the Appellate Division determined that no fiduciary relationship existed between the parties. Id. Instead, the court concluded, the relationship between the parties was one of ordinary contract. Id. The court also concluded that the publisher did not breach its duty of good faith but found that the publisher did breach its contractual obligation to use its best efforts to promote the author's books. Id. The New York Court of Appeals affirmed, concluding that "it could be found, as a matter of law, on the record, that there was no fiduciary relationship." Id. at 46, 330 N.Y.S.2d at 334, 281 N.E.2d at 145 (emphasis added). See also Lane v. Mercury Record Corp., 21 A.D.2d 602, 252 N.Y.S.2d 1011 (1st Dep't 1964) (a royalty or percentage arrangement would not in and of itself establish a fiduciary relationship), aff'd, 18 N.Y.2d 889, 276 N.Y.S.2d 626, 223 N.E.2d 35 (1966). The Court did not hold that fiduciary obligations could never arise in a relationship based at least in part on publishing agreements.

The complaint as drafted, however, goes further than this, suggesting that fiduciary obligations attach to the publisher-author relationship as a matter of law and, consequently, that the Riva companies' alleged failure to meet their express or implied contract obligations amounts to a breach of trust. In addition, there is language in several older state cases, as well as in federal cases interpreting New York state law, that arguably supports the view that a publisher-author contract creates a "technical fiduciary relation." If these cases can be so interpreted, they are directly at odds with the greater weight of authority which teaches that the conventional publisher-author arrangement is not a per se fiduciary relationship. Commenting on the ambiguities in the caselaw, Judge Haight observed that "the legal responsibilities attendant upon this status ... are far from clear." Warfield v. Jerry Vogel Music Co., Inc., 1978 Copyright L.Rep. (CCH) para. 25,005, at 15,033 (S.D.N.Y. Mar. 21, 1978). These cases warrant discussion.

Under New York law, every contract includes an implied covenant of good faith and fair dealing which precludes a party from engaging in conduct that will deprive the other contracting party of his benefits under their agreement. Filner v. Shapiro, 633 F.2d 139, 143 (2d Cir.1980). A contract is also deemed to include any promise which a reasonable person in the position of the promisee would be justified in believing was included. Rowe v. Great Atlantic & Pacific Tea Co., Inc., 46 N.Y.2d 62, 69, 412 N.Y.S.2d 827, 831, 385 N.E.2d 566, 570 (1978). When the essence of a contract is the assignment or grant of an exclusive license in exchange for a share of the assignee's profits in exploiting the license, these principles imply an obligation on the part of the assignee to make reasonable efforts to exploit the license. Havel v. Kelsey-Hayes, 83 A.D.2d 380, 382, 445 N.Y.S.2d 333, 335 (4th Dep't 1981). See also Zilg v. Prentice-Hall, Inc., 717 F.2d 671 (2d Cir.1983) (promise of publisher to publish book which it has obtained exclusive rights to implies good faith effort to promote the book). The critical point here is that a publisher's obligation to promote an author's work is one founded in contract rather than on trust principles.

While it is true that several of the cases cited by plaintiff discuss certain "trust elements that are part of the relationship between a writer and a publisher," Nolan v. Sam Fox Publishing Company, Inc., 499 F.2d 1394, 1400 (2d Cir.1974), it is apparent that the courts were in fact discussing...