PPX Enterprises, Inc. v. Audiofidelity, Inc.

• Decision Date: 04 October 1984
• Docket Number: D,No. 1516,1516
• Citation: 746 F.2d 120
• Parties: PPX ENTERPRISES, INC., Mod Music, Inc., and J.H. Records, Inc., Plaintiffs-Appellants, v. AUDIOFIDELITY, INC. and Dante J. Pugliese, Defendants-Appellees. ocket 84-7132.
• Court: U.S. Court of Appeals — Second Circuit

Page 120

746 F.2d 120

224 U.S.P.Q. 340

PPX ENTERPRISES, INC., Mod Music, Inc., and J.H. Records, Inc., Plaintiffs-Appellants, v. AUDIOFIDELITY, INC. and Dante J. Pugliese, Defendants-Appellees.

No. 1516, Docket 84-7132.

United States Court of Appeals, Second Circuit.

Submitted July 20, 1984.

Decided Oct. 4, 1984.

Kenneth J. Stempler, New York City (Patrick J. Monaghan, Jr., New York City, of counsel), for plaintiffs-appellants.

Silfen & Glasser, P.C., New York City, for defendants-appellees.

Before NEWMAN and PRATT, Circuit Judges, and ROBERT J. KELLEHER, District Judge for the Central District of California, sitting by designation.

GEORGE C. PRATT, Circuit Judge:

Plaintiffs PPX Enterprises, Inc., Mod Music, Inc., and J.H. Records, Inc., appeal from a judgment of the United States District Court for the Southern District of New York, Henry F. Werker, Judge, granting defendant's motion to dismiss and denying plaintiffs' motion for summary judgment in a case brought under the Lanham Act, 15 U.S.C. Sec. 1125(a), and under the common law for unfair competition, tortious interference with a contract, and nonpayment of royalties. The complaint alleges that defendants Audiofidelity Enterprises, Inc., and Dante J. Pugliese market phonograph record albums whose covers and promotional material falsely describe the recordings as featuring musical performances of the late rock star Jimi Hendrix. The district court, finding that plaintiffs had not shown that they had any interest whatsoever in Jimi Hendrix recordings, dismissed the Lanham Act claim for lack of standing, and the state law claims then fell for lack of federal jurisdiction. We conclude that the district court erred because it had no adequate reason for concluding on a motion for summary judgment that the plaintiffs lacked an interest in Hendrix recordings sufficient for standing. We therefore reverse and remand for further proceedings.

I. BACKGROUND

Plaintiffs PPX Enterprises, Inc., Mod Music, Inc., and J.H. Records, Inc., are New York corporations in the business of producing, acquiring, and licensing rights to master recordings of musical performances. Defendants Audiofidelity Enterprises, Inc., and its president, chairman, and sole stockholder, Dante J. Pugliese, are in the closely related business of manufacturing, distributing, licensing, and otherwise marketing phonograph records. Plaintiffs claim to have financial interests in sales of recordings featuring Jimi Hendrix as the lead performer, and they brought this suit alleging that the defendants were marketing albums which purported to feature Hendrix, but which did not contain Hendrix performances at all or which contained performances in which Hendrix was a background performer rather than a featured one. The complaint is that the defendants' misrepresentations create confusion among consumers and raise doubts about the quality and truthfulness of plaintiffs' own recordings. Plaintiffs seek an injunction and damages for disparagement of their reputation, prestige, and goodwill, for the dilution of value of their recordings, and for the loss of royalty income.

Plaintiffs trace their interest in Hendrix recordings to an agreement between PPX and Jimi Hendrix dated October 15, 1965. Under this agreement Hendrix was to produce, play, and sing exclusively for PPX for a period of three years. During the time covered by the agreement Hendrix made for PPX enough recordings for eight phonograph albums, including two entitled "Flashing" and "Get That Feeling".

The extent of PPX's rights to these recordings was subsequently changed by two events, the consequences of which are matters of partial but not complete agreement among the parties. The first event was a settlement agreement dated June 24, 1968, resolving litigation among PPX, Jimi Hendrix, Capitol Records, Inc., Warner Brothers, Yameta Company, Ltd., and others over "exclusive" rights to Hendrix recordings. On its face, and as the defendants admit in their brief filed with this Court, the settlement gave PPX a number of royalty interests in sales of Hendrix albums, and preserved the rights of PPX and Capitol Records to issue the "Flashing" and "Get That Feeling" albums in the United States and Canada.

The second event that limited PPX's rights was an agreement transferring most, but not all, of PPX's rights in "Flashing" and "Get That Feeling" to the other two plaintiffs in the present case, Mod Music and J.H. Records. Here, too, defendants admit that PPX retained an interest in the recordings. In the Third Amended Consent Pretrial Order filed in the present case the parties set out, among other things, these "Agreed Findings of Fact":

8. By an agreement made December 23, 1976 and an amendment to said agreement dated December 24, 1976, PPX sold, assigned and granted to Plaintiffs J.H. RECORDS and MOD MUSIC, exclusively and in perpetuity for U.S. distribution, all of PPX's right, title and interest in and to two (2) Hendrix albums of master recordings entitled "Flashing" and "Get That Feeling".

* * *

* * *

12. Subsequent to December 23, 1976, PPX had no rights in and to the two master recordings referred to in par. 8 above in the territory of the United States other than the right to receive royalty income therefrom pursuant to the agreement and amendment referred to in par. 8. [Emphasis added.]

Mod Music and J.H. Records then sold at least some of their interests in "Flashing" and "Get That Feeling" to others who are not parties in the present case. Plaintiffs insist, however, that the sales were subject to PPX's continuing royalty interest, and that Mod Music and J.H. Records themselves retained both royalty interests and reversionary interests. Plaintiffs also claim that under the reversionary provisions some ownership rights have in fact reverted to J.H. Records.

Defendants see these sales by Mod Music and J.H. Records differently. In a motion filed on January 14, 1983 they asked that Mod Music and J.H. Records be dismissed for lack of standing, arguing that Mod Music and J.H. Records had actually conveyed away all their interests in Hendrix recordings. The plaintiffs, in turn, moved for summary judgment. After preliminary consideration of these motions the district court asked the defendants to move against PPX as well as against Mod Music and J.H. Records, and asked each party to supply documents tracing its chain of title to Hendrix recordings.

Ultimately, the district judge found that PPX's chain of title was flawed from the very beginning. In granting judgment to defendants the court explained that PPX had not shown that it ever held any interest in Jimi Hendrix recordings, even after signing the October 1965 agreement with Hendrix:

PPX has failed to present documentary evidence of its chain of title. Apparently, Hendrix entered into a contract with Sue Records, Inc. several months before he entered into a similar contract with PPX. * * * As a result, Sue Records, Inc., and its successors in interest, hold the protected interests in the Hendrix albums. * * * PPX has not established that it holds any interest afforded protection under the Lanham Act.

Because PPX's original contract was invalid, the court concluded, PPX could neither transfer interests to Mod Music and J.H. Records nor retain any rights to royalties.

II. DISCUSSION

A. Plaintiffs' Royalty Interests.

We treat the district court's decision as one granting summary judgment under Fed.R.Civ.P. 56. Such a motion should not be granted unless there is "no genuine issue as to any material fact" and "the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). "[T]he court's function upon a motion for summary judgment is not to resolve issues of fact but to determine whether any material factual issues are raised after resolving all questionable inferences in favor of the party against whom the judgment is sought." United States v. Matheson, 532 F.2d 809, 813 (2d Cir.), cert. denied, 429 U.S. 823, 97 S.Ct. 75, 50 L.Ed.2d 85 (1976). Uncertainty about any material fact defeats the motion. United States v. One Tintoretto Painting, 691 F.2d 603, 606 (2d Cir.1982). Ambiguities must be viewed in the light most favorable to the party opposing the summary judgment. Project Release v. Prevost, 722 F.2d 960, 968 (2d Cir.1983).

In the present case the district court found it decisive that Sue Records had contracted with Hendrix in July, 1965, several months before the October agreement between Hendrix and PPX. Relying on the principle that the first of two agreements will be protected, the court held that PPX had not established any interest at all in Hendrix recordings.

Given the facts before the court, it was improper to draw that conclusion on a motion for summary judgment. There is considerable uncertainty concerning the effect of the Sue Records contract. The conclusion that PPX's 1965 contract is invalid is neither the only inference, nor the most favorable one for PPX, that can be drawn. It cannot be the most favorable inference because it runs directly counter to the parties' own stipulations. As set out above, there was an "Agreed Finding of Fact" that PPX retained royalty interests in, at the least, "Flashing" and "Get That Feeling".

"Under federal law, stipulations and admissions in the pleadings are generally binding on the parties and the Court." Brown v. Tennessee Gas Pipeline Co., 623 F.2d 450, 454 (6th Cir.1980). "Having agreed on a set of facts, the parties [who adopted the stipulation], and this Court, must be bound by them; we are not free to pick and choose at will." Stanley Works v. FTC, 469 F.2d 498, 506 (2d Cir.), cert. denied, 412 U.S. 928, 93 S.Ct. 2750, 37 L.Ed.2d 155 (1973). Of course, the parties may not create a case by stipulating to facts which do not really exist. A district court is entitled to disregard a stipulation if to accept it would be "manifestly unjust or if the evidence contrary to the stipulation [is] subst...