PPX Enterprises, Inc. v. Audiofidelity Enterprises, Inc.

• Decision Date: 05 May 1987
• Docket Number: No. 587,D,Nos. 86-7704,86-7900,587,s. 86-7704
• Citation: 818 F.2d 266,2 USPQ2d 1672
• Parties: , 2 U.S.P.Q.2d 1672 PPX ENTERPRISES, INC., Mod Music, Inc., and J.H. Records, Inc., Plaintiffs, PPX Enterprises, Inc., Plaintiff-Appellant, v. AUDIOFIDELITY ENTERPRISES, INC. and Dante J. Pugliese, Defendants-Appellees. ocket
• Court: U.S. Court of Appeals — Second Circuit

Page 266

818 F.2d 266

55 USLW 2680, 2 U.S.P.Q.2d 1672

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

No. 587, Docket Nos. 86-7704, 86-7900.

United States Court of Appeals Second Circuit.

Argued Jan. 13, 1987.

Decided May 5, 1987.

Ronald L. Skoler, New York City, for plaintiff-appellant.

Jeanne A. Glasser, New York City (Martin E. Silfen, Silfen & Glasser, P.C., New York City, of counsel) for defendants-appellees.

Before NEWMAN, MINER and MAHONEY, Circuit Judges.

MINER, Circuit Judge:

Plaintiff-appellant PPX Enterprises, Inc. ("PPX") appeals from a judgment entered in the United States District Court for the Southern District of New York (Stanton, J.) in favor of defendant-appellee Audiofidelity Enterprises, Inc. ("Audiofidelity"), on its motion for judgment n.o.v. regarding appellant's claims for damages under the Lanham Act, 15 U.S.C. Sec. 1125(a) (1982), and for tortious interference with prospective economic advantage. PPX also appeals from the denial of attorney's fees.

PPX, a corporation with financial interests in sales of records featuring the late rock musician Jimi Hendrix, asserted claims for injunctive relief and damages under the Lanham Act, as well as state law claims, based on Audiofidelity's marketing of eight albums purporting to feature Hendrix performances, but which did not contain such performances. Although Judge Stanton granted injunctive relief under the Lanham Act, he determined that PPX was not entitled to damages because appellant had failed to provide evidence of actual consumer confusion. Judge Stanton also overturned the jury verdict in favor of PPX on its tortious interference with prospective economic advantage claim. On appeal, PPX contends that there was sufficient support for the special verdict in its favor on its tortious interference claim and on its claim for damages under the Lanham Act. PPX also challenges the denial of attorney's fees. Audiofidelity does not challenge the injunctive relief awarded. We affirm the district court's judgment as to the tortious interference with prospective economic advantage claim. However, because we hold that, under the circumstances of this case, PPX should not have been required to provide evidence of actual consumer confusion, we reverse the judgment as to PPX's claim for damages under the Lanham Act and vacate as to attorney's fees, and remand for proceedings consistent with this opinion.

I. BACKGROUND

PPX, a New York corporation, acquires and licenses rights to master recordings of musical performances. PPX has financial interests in sales of recordings featuring the late rock musician Jimi Hendrix. Audiofidelity, whose president, chairman and sole stockholder is Dante J. Pugliese, manufactures, distributes and licenses phonograph records. Audiofidelity marketed eight albums purporting to contain feature performances by Jimi Hendrix, but which either did not contain Hendrix performances at all or contained performances in which Hendrix was merely a background performer or undifferentiated session player.

Appellant and two other companies not present in this appeal brought suit in the district court, asserting claims under the Lanham Act, 15 U.S.C. Sec. 1125(a) (1982), and New York's anti-dilution statute, New York Gen.Bus.Law Sec. 368-d (McKinney 1984), as well as common law claims of tortious interference with prospective economic advantage and breach of an obligation to pay royalties. The question of appellant's standing to sue was resolved in favor of appellant by a panel of this court in 1984. See PPX Enterprises v. Audiofidelity, Inc., 746 F.2d 120 (2d Cir.1984).

Trial commenced in the district court on May 13, 1986, before a jury. The parties stipulated that the issue of liability would be tried before the jury and that damages would be determined by a magistrate at a subsequent trial, if needed. Prior to the taking of testimony, PPX withdrew its claim for breach of an obligation to pay royalties. At the conclusion of PPX's case, defendants moved for a directed verdict. The district court granted the motion as to Pugliese, a ruling PPX does not contest on appeal, and reserved decision as to Audiofidelity. Audiofidelity renewed its motion for a directed verdict at the conclusion of its case, and the district court again reserved decision.

The liability issues were given to the jury in the form of a special verdict. The jury returned a special verdict in favor of PPX on the Lanham Act and tortious interference claims. The jury gave an affirmative answer to the question: "Do you find a substantial number of consumers were actually confused by the defendant's false or misleading descriptions or representations on [its] records or albums?" A special verdict, which PPX does not contest on appeal, was returned in favor of Audiofidelity on the anti-dilution claim.

On June 5, 1986, the district court, treating Audiofidelity's renewal of its motion for a directed verdict as a motion for judgment n.o.v., see Fed.R.Civ.P. 50(b), granted Audiofidelity's motion with respect to PPX's claim for damages under the Lanham Act and its claim for tortious interference with prospective economic advantage. Although Judge Stanton accepted the jury's finding that Audiofidelity used false or misleading descriptions or representations on its albums, he determined that PPX was not entitled to damages under the Lanham Act because PPX had not introduced evidence to show "directly or by inference that any purchaser of [Audiofidelity's] records was actually deceived or misled by their labeling." Joint App. at 1215. Judge Stanton granted the motion for judgment n.o.v. on PPX's tort claim, based on his determination that PPX had failed to show that Audiofidelity's actions were criminal or fraudulent, or that the lost economic advantage was reasonably likely to have occurred absent Audiofidelity's interference. Judge Stanton denied the motion with respect to PPX's claim for injunctive relief under the Lanham Act.

On August 27, 1986, the district court issued an injunction prohibiting the further sale of ersatz Jimi Hendrix albums without a disclaimer, requiring Audiofidelity to repurchase current stocks of its albums from wholesale and retail purchasers, and requiring Audiofidelity to publicize its return policy in music industry magazines. By order dated October 15, 1986, the district court denied PPX's request for attorney's fees. This appeal followed.

II. DISCUSSION

A. Tortious Interference with Prospective Economic Advantage Claim

PPX's common law claim has been referred to variously by the parties and the district court as tortious interference with: prospective economic advantage, beneficial business relations, prospective business advantage, and business or economic relations. Regardless of the appellation employed, the elements necessary to establish such a claim remain constant. Martin Ice Cream Co. v. Chipwich, Inc., 554 F.Supp. 933, 945 (S.D.N.Y.1983). In order to prevail on a claim of tortious interference with prospective economic advantage, a plaintiff is required to show "the defendant's interference with business relations existing between the plaintiff and a third party, either with the sole purpose of harming the plaintiff or by means that are 'dishonest, unfair or in any other way improper.' " Id. (quoting Robbins v. Ogden Corp., 490 F.Supp. 801, 811 (S.D.N.Y.1980)). If the defendant's interference is intended, at least in part, to advance its own competing interests, the claim will fail unless the means employed include criminal or fraudulent conduct. Nifty Foods Corp. v. Great Atlantic & Pacific Tea Co., 614 F.2d 832, 838 (2d Cir.1980); Strapex Corp. v. Metaverpa N.V., 607 F.Supp. 1047, 1050 (S.D.N.Y.1985).

Although the district court overturned the jury verdict on this claim because PPX had not shown fraudulent or criminal conduct and resultant damages, we need not reach those issues because we find that PPX has failed to establish an essential element of its claim for tortious interference. PPX alleged that, "by virtue of the actions of [Audiofidelity] in producing and distributing these records which purport to be Jimi Hendrix [records] and are not, ... PPX's rights to prospective economic advantage have been interfered with, in that royalties, sales and so forth are going to be affected...." Joint App. at 758. PPX attempted to rely on the contract between the president of PPX and Jimi Hendrix, id. at 757, as the predicate, underlying relationship to support its claim.

PPX claims only that Audiofidelity "interfered" with the benefits resulting from its business relations. PPX has failed to allege, much less prove, that Audiofidelity interfered in any way with the underlying business relationship existing between PPX and the late Jimi Hendrix and his successors in interest.

The district court's charge to the jury made clear that, in order to prevail on this tort claim, PPX must prove, inter alia, that "the defendant interfered with some contract or business relation between the plaintiff and someone else, and that the defendant knew about that contract or relationship." Id. at 877-78. Here, the underlying business relations remained undisturbed. Cf. Cosmopolitan Film Distributors, Inc. v. Feuchtwanger Corp., 226 N.Y.S.2d 584, 591 (Sup.Ct.1962) ("Whatever the nature of the business relationship claimed to have been disturbed ... some act of interference or inducement, at least, by a third party must be shown before he can be held liable for inducing breach or termination of that relationship."). Therefore, PPX's claim was fatally defective. In addition, we note that a claim of tortious interference with prospective economic advantage usually involves interference with a "business relationship not amounting to a contract," 32 N.Y.Jur. Interference Sec. 40 (1963),...