Records v. Sony Music Entertainment, 03 Civ. 3204 (MGC).
| Decision Date | 18 July 2008 |
| Docket Number | No. 03 Civ. 3204 (MGC).,03 Civ. 3204 (MGC). |
| Citation | 566 F.Supp.2d 305 |
| Parties | 24/7 RECORDS, INC., Plaintiff, v. SONY* MUSIC ENTERTAINMENT, INC. and Sheridan Square Entertainment, LLC d/b/a Artemis Records, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Cinque & Cinque, P.C., by: Robert W. Cinque, Esq., New York, NY, for Plaintiff.
Manatt, Phelps & Phillips, LLP, by: Gregory A. Clarick, Esq., Robert A. Jacobs, Esq., New York, NY, for Defendants.
24/7 Records, Inc. ("24/7"), a start-up record production company, sues Sheridan Square Entertainment, LLC, d/b/a Artemis Records ("Artemis") (now known as Sheridan Square Entertainment, Inc.), a record distributor, for breach of contract arising from Artemis's termination of a record distribution agreement and other miscellaneous breaches of that agreement. 24/7 also sues Sony Music Entertainment, Inc. ("Sony") (now known as Sony BMG Music Entertainment, Inc.) for tortious interference with contract and unfair competition arising from Sony's alleged role in procuring Artemis's breach of the distribution agreement. Defendants move for summary judgment on all claims on the following grounds: 1) 24/7's administrative dissolution negates its standing to bring these claims and provides cause for Artemis's termination of the agreement, 2) 24/7 failed to provide Artemis with notice and an opportunity to cure the alleged termination, 3) 24/7 cannot prove compensatory or punitive damages for its claims, 4) 24/7 cannot maintain its claims against Sony for tortious interference with contract and unfair competition, and 5) various arguments regarding the miscellaneous breach of contract claims. For the following reasons, the motion is granted in part and denied in part.
Unless otherwise noted, the following facts are undisputed.
24/7 was incorporated under the laws of Florida in April of 2001 by Louis Pace. 24/7 and Artemis entered into a record distribution agreement on June 18, 2001, under which Artemis became the exclusive distributor of 24/7's records in the United States for an initial period of three years. The agreement contemplated that a Sony subsidiary, RED Distribution, Inc. ("RED"), would perform certain distribution tasks for Artemis. The agreement provides that New York law governs its validity, interpretation, and legal effect.
On June 20, 2001, Pace formed 24/7 Records, LLC ("24/7 LLC" or "the LLC"). According to Pace's deposition testimony, the LLC was formed because, as compared to the corporate form, the LLC form "provided a better methodology for foreign investors to be involved." The foreign investor involved here was Egon Putzi, an Austrian national who invested substantial sums of money in 24/7 LLC. Robert W. Cinque, Esq., counsel for 24/7, confirmed at oral argument on March 19, 2008 that "the reason for the LLC was that[,] after they formed [24/7], they realized that Putzi is a non-U.S. citizen and that would destroy the subchapter S tax benefits." Pace further testified that once the LLC was formed, "the Inc. company was put aside and we did business as the LLC." 24/7 LLC conducted all of the business for the record label and filed tax returns. No tax returns were filed for 24/7, which was administratively dissolved on October 4, 2002 for failure to file an annual report. 24/7 was reinstated on March 6, 2008.
This dispute was sparked by 24/7's production of a CD single of a cover version of "The Ketchup Song (Heh Hah)." In the summer of 2002, a group named "Las Ketchup" recorded "Aserejé," later renamed "The Ketchup Song (Heh Hah)," which was popular outside of the United States. Columbia Records, a Sony affiliate, distributed the original song as a single and as part of a full-length album 24/7's version of the Ketchup Song was performed by a group named "The Hines Girls," and the cover of the CD jacket featured a ketchup bottle with the words "Hines Girls" and "The Ketchup Song" on the bottle's label.
Shortly after 24/7 released its version of the Ketchup Song, Artemis pulled the record from distribution after receiving complaints from Sony officials. In a letter to 24/7 dated November 7, 2002 ("November 7 letter"), Artemis' informed 24/7 that continued distribution of the Ketchup Song "might infringe rights owned by the distributor of the original version of this song and might also lead to a trademark dispute with the owner of the Heinz Ketchup trademark." The letter went on to state that, for other reasons, Artemis "agrees that it would be best to terminate this relationship immediately," and that Artemis will "be sending to retail outlets notice advising them that Artemis will not be distributing further product." As of November of 2002, 24/7 had eleven recordings in distribution, with three others in preparation for distribution, including the Ketchup Song.
The parties disagree as to how or when the distribution agreement was terminated. 24/7 argues that Artemis unilaterally terminated the agreement through the November 7 letter. Artemis argues that 24/7 abandoned its business as of November 7, and that 24/7's response letter dated November 14, 2002 failed to provide Artemis with notice and an opportunity to cure the alleged breach of the agreement. However, it is undisputed that as of November 7, 2002, 24/7 ceased doing business.
During its one and one-half years in business, 24/7 never made a profit. On its 2001 and 2002 tax returns, the LLC reported losses of $337,519 and $811,558, respectively. From June of 2001 to November of 2002, the LLC received capital contributions totaling approximately $1,230,000. 24/7 contends that the total amount invested in the venture was $1,826,250, which includes the capital contributions, money used for personal expenditures by Pace and Putzi, a letter of credit issued to Artemis by Putzi and Susan F. Jones, and other non-cash assets. By the end of June of 2002, the LLC had only $19,384 in its account at Salomon Smith Barney, which was held in the name of "24/7 Records." Putzi testified at his deposition that, upon starting the business, he thought that he might have to invest up to $5,000,000 in the company. On July 19, 2002, Putzi made his last contribution to the LLC, $300,000. Following that investment, the LLC had $279,870 in its account at the end of July of 2002, $225,254 at the end of August, $75,090 at the end of September, $33,668 at the end of October, and roughly $12,500 on the eve of the alleged termination. By the end of November of 2002, the LLC had $1,432 in its account, and Artemis was holding an additional $95,106 of credit in reserve to cover future returns of 24/7's records.
The Ketchup Song claim was dismissed on summary judgment because 24/7 failed to obtain a copyright license from Sony before distributing the song, a condition for distribution contained in the agreement. 24/7 Records, Inc. v. Sony Music Entm't, Inc., 429 F.3d 39, 41-43 (2d Cir. 2005), aff'g in part No. 03-3204, 2004 WL 2093132, *3-6, 2004 U.S. Dist. LEXIS 18702, *10-16 (S.D.N.Y.2004). While 24/7's breach of contract claim focused primarily on Artemis's decision not to distribute the Ketchup Song, it also included claims arising from the general termination of the agreement and other miscellaneous breaches of the agreement. 429 F.3d at 41, 43-46. The Second Circuit remanded those contract claims against Artemis, as well as 24/7's claims against Sony for tortious interference with contract and unfair competition, for further proceedings. Id. at 47-48. Defendants now move for summary judgment on those remaining claims.
Summary judgment should be granted "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A genuine issue of material fact exists when the evidence is "such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In deciding whether a genuine issue of fact exists, the court must "construe the facts in the light most favorable to the non-moving party and must resolve all ambiguities and draw all reasonable inferences against the movant." Dallas Aero., Inc. v. CIS Air Corp., 352 F.3d 775, 780 (2d Cir.2003). Summary judgment is appropriate when "the nonmoving party [fails] to make a sufficient showing on an essential element of [its] case with respect to which [it] has the burden of proof." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
Defendants argue that 24/7 was administratively dissolved as a Florida corporation on October 4, 2002, and that under Florida corporation law, it cannot maintain this suit. Even if it could maintain this suit, defendants argue that 24/7's dissolution is a proper cause for termination under the distribution agreement, which provides in ¶ 9.01(a) that "[i]n the event of ... (2) your dissolution ... Distributor shall have the right and option to terminate the Term hereof upon notice to you." 24/7 argues that New York corporation law should apply, that this action is part of 24/7's winding up of its affairs, and that 24/7 has been reinstated as a Florida corporation.
A corporation's capacity to sue or be sued is determined by the law under which it was organized. Fed.R.Civ.P. 17(b)(2). 24/7 is a Florida corporation, to which Florida law applies. Since 24/7 was successfully reinstated, the standing argument is moot. "[A] corporation administratively dissolved for technical reasons may reinstate itself by filing a satisfactory current annual report." Allied Roofing Indus, v. Venegas, 862 So.2d 6, 8 (Fla.3d Dist.Ct.App.2003). "When the reinstatement is effective, it relates back to and...
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