Postlewaite v. McGraw-Hill

• Decision Date: 10 June 2003
• Docket Number: Docket No. 01-7570.
• Citation: 333 F.3d 42
• Parties: Philip F. POSTLEWAITE, John S. Pennell, Plaintiffs-Appellants, v. MCGRAW-HILL, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

333 F.3d 42

Philip F. POSTLEWAITE, John S. Pennell, Plaintiffs-Appellants, v. MCGRAW-HILL, INC., Defendant-Appellee.

Docket No. 01-7570.

United States Court of Appeals, Second Circuit.

Argued: February 19, 2003.

Decided: June 10, 2003.

Philip F. Postlewaite pro se, Chicago, Illinois (John S. Pennell pro se, Evanston, Illinois, McDermott, Will & Emery, Chicago, Illinois, on the brief), for Plaintiffs-Appellants.

Richard Dannay, New York, New York (Cowan, Liebowitz & Latman, New York, New York, on the brief), for Defendant-Appellee.

Before: OAKES, KEARSE, and B.D. PARKER, Jr., Circuit Judges.

KEARSE, Circuit Judge.

Plaintiffs pro se Philip F. Postlewaite and John S. Pennell ("plaintiffs" or the "Authors") appeal from a judgment of the United States District Court for the Southern District of New York, Jed S. Rakoff, Judge, dismissing their complaint against defendant McGraw-Hill, Inc. ("McGraw-Hill"), for alleged breach of contract by reason of McGraw-Hill's nonpayment of royalties in connection with its assignment to Thomson Legal Publishing Inc. ("Thomson") of an agreement between McGraw-Hill and Augusta Software Design, Inc. ("ASD"), for ASD's production and delivery of a CD-ROM version of a treatise authored by plaintiffs (the "Software Agreement"). The district court granted McGraw-Hill's motion for summary judgment on the ground of collateral estoppel, ruling that a prior judgment confirming an arbitration award in favor of McGraw-Hill against plaintiffs, see Postlewaite v. McGraw-Hill, Inc., No. 98 Civ. 0611, 1998 WL 751687 (S.D.N.Y. Oct. 28, 1998) (Stanton, J.) ("Postlewaite I"), aff'd mem., 2001 WL 505972 (2d Cir. May 11, 2001), established that McGraw-Hill's assignment of assets to Thomson did not impose any royalty obligation on McGraw-Hill. On appeal, plaintiffs contend that the district court's collateral estoppel ruling is erroneous because the arbitrators did not necessarily make the ruling imputed to them by the district court. For the reasons that follow, we agree, and we vacate the judgment and remand for further proceedings.

I. BACKGROUND

The terms of the various agreements and the acts of the respective parties are not in dispute. Plaintiffs are the authors of Partnership Taxation, Fifth Edition (the "Work"). In 1993, they entered into an agreement with McGraw-Hill for publication of the Work (the "Publishing Agreement" or "Agreement") through a McGraw-Hill division, Shepard's Topical Publishing Division ("Shepard's"). As to royalties, the Agreement provided, inter alia, that for at least a five-year period, McGraw-Hill was to pay the Authors 20% of the full, undiscounted list price of each copy of the Work sold (Publishing Agreement § 7(a)(1)), as well as

20 percent of the Publisher's gross receipts from the sale, assignment, or licensing to others by the Publisher of any rights to the Work or any part of the Work or upkeep service prepared by the Authors shall be paid to the Authors

(id. § 7(a)(3) (emphasis added)). The Agreement also provided that

[t]his Agreement may not be assigned by either the Authors or the Publisher without the prior written consent of the other party or parties, which shall not be unreasonably withheld. This Agreement shall be binding on the parties signing it and on all their heirs, legal representatives, successors, and permitted assignees.

(Id. § 13.)

In 1995, McGraw-Hill sold the Shepard's assets, which included some 280 publishing agreements, to Thomson for approximately $35,000,000. In anticipation of the sale, McGraw-Hill sent letters dated November 17, 1995, and December 18, 1995, to Pennell and Postlewaite, respectively (the "McGraw-Hill Letters"), seeking plaintiffs' consent to the assignment of their Publishing Agreement:

We request your consent to assign your publishing agreement to Thomson as part of Thomson's acquisition of Shepard's Topical Publishing Business. Shepard's will continue to pay you all your royalties under your publishing agreement until the closing of this transaction. Thomson will assume all of Shepard's obligations under your publishing agreement after the closing, including, of course, the obligation to pay your royalties....

(McGraw-Hill Letters at 1 (emphasis added).) Each such letter included a "CONSENT TO ASSIGNMENT" to be executed by the Authors. Each plaintiff signed that portion of the letter, dating his consent December 20, 1995 (the "Authors' Consents"), and returned the letters to McGraw-Hill. The "CONSENT TO ASSIGNMENT" stated as follows:

I hereby consent to the assignment of the Publishing Agreement pertaining to a work entitled Partnership Taxation, 5/e to Thomson Legal Publishing Inc., effective as of the date when Thomson Legal Publishing, Inc. acquires the Topical Publishing Business of Shepard's/McGraw-Hill, Inc.

(Authors' Consents.)

A. The Arbitration Award and Postlewaite I

In 1997, the Authors commenced an arbitration proceeding against McGraw-Hill ("1997 Arbitration") claiming that, under the royalty provisions of § 7(a)(3) of the Publishing Agreement, the transfer of that Agreement to Thomson entitled them to 20% of that part of the gross receipts of the sale that was attributable to the sale or assignment of rights to the Work. In its answer to the arbitration complaint ("Arbitration Answer"), McGraw-Hill asserted, inter alia, that the Authors, "having consented to the assignment of the Publishing Agreement to another publisher, have waived any claim for royalties or other payment." (McGraw-Hill Arbitration Answer ¶ 4.) In its brief on the merits, submitted following limited discovery, McGraw-Hill argued primarily that

[t]he heart or essence of the McGraw-Hill/Thomson transaction was not a sale or assignment of rights in the works under ¶ 7a(3), but rather a sale or assignment of the agreements for those works under ¶ 13 — in which Thomson was substituted for McGraw-Hill and took McGraw-Hill's place under the agreements.

(McGraw-Hill's Hearing Brief, dated September 29, 1997, at 7 (emphasis in original).) McGraw-Hill contended that

[t]he December 1995 correspondence between Claimants and McGraw-Hill reflects this crucial distinction between assignment of the publishing agreement as part of the sale of a business and the licensing or assignment of rights in a work covered by that agreement....

Thus, McGraw-Hill's letters (written well before Claimants asserted their claim) made it clear that its share as publisher ... was being sold, and that as part of the sale the "publishing agreement" was being assigned, not rights to Claimants' work.... Claimants signed the "Consent to Assignment" clause at the foot of each letter, in which they gave their "consent to the assignment of the Publishing Agreement [for the Work] to Thomson," effective as of the date of Thomson's acquisition of the business. McGraw-Hill's sale of the business to Thomson, and Claimants' consent to the assignment of their Publishing Agreement as part of the sale, fall squarely within ¶ 13 of the agreement.

(Id. at 9-10 (emphasis in original).) McGraw-Hill argued that "[n]o royalty or other payment obligation applies to [¶ 13]. Moreover, [the Authors] overlook their own written consent pursuant to the assignment clause." (Id. at 6.)

McGraw-Hill also argued that the granting of plaintiffs' claim would result in their unjust enrichment:

[c]laimants' interpretation would also lead to absurd and unintended consequences. For example, part of the sale of the business included copies of Claimants' books held in inventory. To pay them a royalty on those books when the business is sold and then to pay them again when the new publisher sells the same books (¶ 7a(1)), would be to give them two payments for the single sale of each book.

(Id. at 11; see also id. at 13 ("Payment to Claimants for McGraw-Hill's assignment of the Publishing Agreement to Thomson would amount to giving Claimants a windfall.").)

The arbitrators unanimously denied the Authors' claims. The award read, in pertinent part, as follows:

WE, THE UNDERSIGNED ARBITRATORS,... do hereby, FIND and AWARD, as follows:

A. The arbitrators' [sic] hereby determine that there are no royalties due, with respect to the sale of the Topical Publishing unit of SHEPARD'S/MCGRAW-HILL, INC. to Thomson Legal Publishing Inc., to PHILIP F. POSTLEWAITE AND JOHN S. PENNELL, hereinafter referred to jointly and severally as CLAIMANTS, from SHEPARD'S/MCGRAW-HILL, INC., hereinafter referred to as RESPONDENT.

WE, THEREFORE, AWARD, AS FOLLOWS:

1. With respect to the claims of CLAIMANTS against RESPONDENT, same is hereby denied in its entirety.

....

4. This Award is in full settlement of all claims submitted to this Arbitration.

(Arbitration Award, dated October 29, 1997, at 1-2.) The arbitrators gave no explanation for their decision. Paragraphs 2 and 3 of the award dealt only with the fees to be paid to the arbitrators and the arbitration association.

In Postlewaite I, the district court, Stanton, J., confirmed the arbitration award, noting that it

"must confirm the arbitrators' decision if a ground for the arbitrators' decision can be inferred from the facts of the case. This is so even if the ground for their decision is based on an error of fact or an error of law." ... The justification need only be "barely colorable." 1998 WL 751687, at *3 (quoting Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 13 (2d Cir.1997)). Applying this standard, the court concluded, inter alia, that "there is more than a `colorable' reason for the arbitrators' decision. They could have found that the assignment of the entire Agreement to Thomson merely replaced McGraw-Hill with Thomson." Postlewaite I, 1998 WL 751687, at *3.

B. The Present Action

The Shepard's assets sold to Thomson also included McGraw-Hill's Software Agreement with ASD for production of a computerized version of the Authors' Work. In 2000, plaintiffs commenced the present action, alleging that...