Stewart v. Screen Gems-EMI Music, Inc., Case No. 14–cv–04805–JSC

• Decision Date: 02 March 2015
• Docket Number: Case No. 14–cv–04805–JSC
• Citation: 81 F.Supp.3d 938,114 U.S.P.Q.2d 1585
• Parties: Stephanie Ford Stewart, Plaintiff, v. Screen Gems–EMI Music, Inc., et al., Defendants.
• Court: U.S. District Court — Northern District of California

81 F.Supp.3d 938

114 U.S.P.Q.2d 1585

Stephanie Ford Stewart, Plaintiff

v.Screen Gems–EMI Music, Inc., et al., Defendants.

Case No. 14–cv–04805–JSC

United States District Court, N.D. California.

Signed March 2, 2015

Nicholas A. Carlin, David M. Given, Phillips, Erlewine, Given & Carlin, LLP, San Francisco, CA, for Plaintiff.

Darius K.C. Zolnor, Michael Joseph Niborski, Pryor Cashman LLP, Los Angeles, CA, Donald Zakarin, Pryor Cashman LLP, New York, NY, for Defendants.

ORDER RE: MOTIONS TO DISMISS

Re: Dkt. No. 9, 12

JACQUELINE SCOTT CORLEY, United States Magistrate Judge

Plaintiff Stephanie Ford Stewart (“Plaintiff”) alleges that Defendants wrongfully withheld publishing royalties to the song “Daydream Believer,” which Plaintiff's late husband, John Stewart (“Stewart”), wrote. The claims arise out of a 1967 songwriter's agreement between Stewart and Screen Gems–EMI Music, Inc. (“Screen Gems–EMI”).¹ The agreement is a “net receipts” arrangement, which means that the publisher is only obligated to remit to the songwriter a certain percentage of the revenue the publisher actually receives after deducting any applicable fees and costs, in contrast to an “at source” agreement, which requires the publisher to remit to the songwriter a certain percentage of all revenue garnered from the territory even before deducting fees and costs. The crux of Plaintiff's claims is that Defendants are taking advantage of the “net receipts” arrangement to Plaintiff's detriment.

To that end, Plaintiff contends that Defendants have been deducting from the song's foreign receipts fees Screen Gems–EMI paid to affiliated foreign sub-publishers that are alter egos of Screen Gems–EMI and operate with Screen Gems–EMI as part of a single enterprise; that is, that Screen Gems–EMI is effectively paying itself and then deducting those payments from the receipts to reduce the “net receipts” and thus the royalty amount paid to Plaintiff. Plaintiff also complains that the fees Screen Gems–EMI pays to its foreign sub-publishers are grossly above market rate and that Screen Gems–EMI is improperly deducting agency fees from the revenue from domestic sales, undercutting Plaintiff's royalties in this context as well.

Presently before the Court are Defendants' motions to dismiss. All three Defendants move to dismiss for failure to state a claim upon which relief can be granted (Dkt. Nos. 9, 12), and Defendants EMI and EMI North America move to dismiss for lack of personal jurisdiction (Dkt. No. 12). Having considered the parties' submissions and having had the benefit of oral argument on February 5, 2015, the Court GRANTS EMI and EMI North America's 12(b)(2) motion and GRANTS IN PART and DENIES IN PART Screen Gems–EMI's 12(b)(6) motion. At bottom, the Court concludes that the case may proceed against Screen Gems–EMI.

BACKGROUND

A. Complaint Allegations²

Plaintiff Stephanie Ford Stewart (“Plaintiff”) is the widow of John Stewart (“Stewart”), a songwriter who penned the song “Daydream Believer.” (Dkt. No. 1–1 ¶ 1.) Daydream Believer initially became a hit in 1967 when the Monkees recorded and released the song, and it was later recorded on other albums, including 2009's top-selling album of the year. (Id. ¶¶ 17, 20–21.) Stewart passed away in 2008, so Plaintiff brings this action on behalf of her husband's trust, which owns the rights to Stewart's songs, including Daydream Believer. (Id. ¶¶ 5, 22.)

In 1967, Stewart entered a songwriter's agreement (“the Agreement”) with music publishing company Screen Gems–Columbia Music, Inc.; among other things, the Agreement governs payment of royalties. (Id. ¶¶ 6, 18.) Defendant Screen Gems–EMI is the successor-in-interest to Screen Gems–Columbia Music (id. ¶ 7), and does business, along with all related companies, as “EMI Music Publishing.” (Id. ¶ 11.) Pursuant to the Agreement, Stewart assigned his rights in Daydream Believer to Screen Gems–EMI in exchange for Screen Gems–EMI's agreement to pay royalties to Stewart. (Dkt. No. 1–1 ¶ 19.) Paragraphs 3d and 3e of the Agreement provide in relevant part:

3. In consideration for and in full payment of the aforesaid sale, the Publisher hereby agrees to pay the following royalties jointly to the Composers with respect to the musical composition:

...

d) FIFTY (50%) percent of any and all net sums actually received by the Publisher from the mechanical rights, electrical transcription and reproducing rights, motion picture synchronization and television rights, and all other rights (except as otherwise specifically provided for herein) therein in the United States and Canada, except that the Composers shall not be entitled to share in any sum or sums received by the Publisher from ASCAP or BMI or any public performance rights organization which pays performance fees directly to songwriters.

e) FIFTY (50%) percent of any and all net sums actually earned and actually received by the Publisher from the sales and uses (other than public performance[ ] uses for which Composers are paid by any public performance rights organization) of the musical composition in countries outside of the United States and Canada.

(Dkt. No. 1–1 at Ex. A ¶ 3 (emphasis added).)

Screen Gems–EMI collects song royalties generated outside of the United States and Canada through sub-publishers. Screen Gems–EMI uses affiliated foreign sub-publishers that are “alter egos of one and another and form a single enterprise.” (Id. ¶ 34.) EMI Music Publishing permits its own alter ego foreign sub-publishers to retain 50% of the collected foreign royalties (instead of the market rate of 10%), and thus only remits 50% of the amount collected to Screen Gems–EMI. (Id. ¶¶ 29, 31.) Because the foreign sub-publishers are essentially one and the same as Defendants, Defendants have an incentive to shift more revenue to the foreign affiliates so that Screen Gems–EMI's “net amount actually received”—i.e., the amount that it must split equally with Plaintiff pursuant to the Agreement—becomes much smaller. (See id. ¶ 27.) As a result, Plaintiff has lost out on hundreds of thousands of dollars of revenue from foreign sales.

The second set of allegations pertains to the royalty payments from sales in the United States and Canada (“domestic” revenue) as it relates to Paragraph (d) of the Agreement. That provision requires Screen Gems–EMI to remit to Plaintiff 50% “of any and all net sums actually received” from certain enumerated rights “and all other rights (except as otherwise specifically provided for herein)” from domestic revenue. (Dkt. No. 1–1 at Ex. A ¶ 3.) The Agreement does not address whether Defendants “may delegate their obligation to collect [domestic] mechanical royalties to third party collection agents, such as Harry Fox Agency and the Canadian Musical Reproduction Rights Agency [ (“CMMRA”) ], and then deduct those agents' fees from the gross before calculating Plaintiff's 50% share.” (Dkt. No. 1–1 ¶ 37.) It is industry practice to explicitly state such a right in a publishing contract if the parties have so agreed, and there is no such provision in the Agreement, but Defendants have nonetheless been deducting such fees at a rate of 7.5 to 8.5% of their “net sums actually received.” (Id. ¶¶ 37–38.)

Finally, Defendants have also “been deducting phony ‘collection agency fees' from mechanical royalties paid directly to Defendants by record labels such as” SONY/ATV, when these fees were not collected by an agent at all. (Id. ¶ 39.)

Defendants concealed the above practices by sending Plaintiff royalty statements that were “confusing at best and misleading at worst” and “did not clearly disclose that the foreign affiliates were deducting 50% of the foreign income before sending the money” to Screen Gems–EMI. (Id. ¶ 40.) Plaintiff discovered Defendants' wrongdoing on or about August 10, 2014, when she retained an accountant to review Defendants' source record. (Id. ¶ 41.)

C. Jurisdictional Allegations³

Screen Gems–EMI and EMI North America are both Delaware corporations with their principal places of business in New York City. (Id. ¶¶ 6, 9; Dkt. No. 13 ¶ 7.) EMI is a multinational company headquartered in London, United Kingdom. (Dkt. No. 1–1 ¶ 8; Dkt. No. 13 ¶ 3.) EMI does business exclusively in the United Kingdom and Germany. (Dkt. No. 13 ¶ 3.) Neither EMI nor EMI North America maintains an office or employees in California, has a bank account or telephone number in California, owns, administers, or exploits any musical compositions in California. (Dkt. No. 13 ¶¶ 4–5, 7, 9.) Further, EMI has no agent for service of process in California, nor does it own real or personal property in the state. (Id. ¶ 5.) Defendants also offer evidence that neither EMI nor EMI North America “transact any business in California.” (Dkt. No. 13 ¶¶ 4, 7.)

Screen Gems–EMI and EMI North America share an office in New York, and have the same President, CEO, and Secretary: David Johnson. (Dkt. No. 13 ¶ 1; Dkt. No. 22–1 ¶¶ 4–6 & Exs. B–D.) The same person, Francis Crimmins, serves as CFO of Screen Gems–EMI and a director of EMI and EMI North America. (Dkt. No. 22–1 ¶¶ 4–6 & Exs. B–D.) These two individuals, Johnson and Crimmins, are the sole directors of EMI. (Id. ¶ 6 & Ex. D.)

Plaintiff contends that Defendants are all part of a single enterprise doing business as “EMI Music Publishing” (Dkt. No. 1–1 ¶ 11), which Defendants note is not an existing legal entity, but rather a name used to refer to the collection of over 100 companies formerly owned by a single entity. (Dkt. No. 11 ¶ 1 n.1 (noting that “EMI Music Publishing” is a “shorthand name used to refer to the music publishing companies that were formerly owned by EMI–Group, Plc, which was an United Kingdom public company and which are currently owned by a consortium of investors including Sony Corporation of America.”).) The evidence indicates that a variety of EMI-related entities, including Defendants in this case, use the name “EMI Music Publishing” without identifying a particular company.

In accordance with that...