Summer Rain v. Donning Company/Publishers, Inc.
| Decision Date | 23 June 1992 |
| Docket Number | Nos. 91-2372,91-2375,s. 91-2372 |
| Citation | 964 F.2d 1455 |
| Parties | Mary SUMMER RAIN; Jan Carlton; John Nelson; David A. Cherry; Catherine Ann Lake; Lawrence M. Steinhart; Leonard Chetkin; John James Scialdone; Winter Robinson; Colleen Doran; Jean N. Campbell; Elizabeth Marlow, Plaintiffs Appellees, v. THE DONNING COMPANY/PUBLISHERS, INCORPORATED; Walsworth Publishing, Incorporated; Richard Mull; Donald O. Walsworth; Stanley Hainer, Defendants Appellants, and Schiffer Publishing Limited; Peter B. Schiffer, Defendants. Mary SUMMER RAIN; Jan Carlton; John Nelson; David A. Cherry; Catherine Ann Lake; Lawrence M. Steinhart; Leonard Chetkin; John James Scialdone; Winter Robinson, a/k/a Theresa Winter, a/k/a Theresa Winter Pope; Colleen Doran; Jean N. Campbell; Elizabeth Marlow, a/k/a Mary Elizabeth Marlow, Plaintiffs Appellees, v. SCHIFFER PUBLISHING LIMITED; Peter B. Schiffer, Defendants Appellants, and The Donning Company/Publishers, Incorporated; Walsworth Publishing, Incorporated; Richard Mull; Donald O. Walsworth; Stanley Hainer, Defendants. |
| Court | U.S. Court of Appeals — Fourth Circuit |
Brant Mitchell Laue, Stinson, Mag & Fizzell, Kansas City, Mo., argued (Stephen J. Owens, Kansas City, Mo., Stanley G. Barr, Stephen E. Story, Kaufman & Canoles, Conrad M. Shumadine, Willcox & Savage, P.C., Norfolk, Va., on brief), for defendants-appellants.
John Warren Hart, Beaton & Hart, P.C., Virginia Beach, Va., argued (Morris J. Keller, on brief), for plaintiff-appellees.
Before WIDENER and LUTTIG, Circuit Judges, and WARD, Senior United States District Judge for the Middle District of North Carolina, sitting by designation.
Appellees are a group of authors (the Authors) who have publishing contracts with the Donning Company. Appellants are Donning, its parent company Walsworth Publishing, Schiffer Publishing, as well as certain officers of Donning and Walsworth, and Schiffer Publishing's CEO, Peter Schiffer (collectively the defendants).
The Authors filed this action in the Eastern District of Virginia. They challenge the Donning Company's sale of certain rights in their books and certain book inventories to Schiffer Publishing. The Authors allege that the sale constituted a breach of their publishing contracts with Donning, and that the defendants committed various civil wrongs including conspiracy, tortious interference with contractual relations, fraud, violations of RICO, copyright infringement and conversion.
All of the publishing contracts contain an arbitration clause. The defendants moved the district court to stay the case pending arbitration but the district court denied their motion. 1 Defendants appeal and we now affirm in part, but vacate in part, and remand.
Each of the Authors' publishing contracts contains an arbitration clause providing as follows:
Any controversy or claim arising out of this agreement or breach thereof shall be settled by arbitration in accordance with the rules then in force of the American Arbitration Association, and judgment on the award may be entered in the highest court of the forum, state or federal, having jurisdiction. Arbitration shall be held in the City of Norfolk, Commonwealth of Virginia, unless otherwise agreed by the parties. In case of failure to pay royalties, Author may, at Author's option, refuse to arbitrate and may pursue remedies at law or in equity.
(emphasis added).
The contracts also contain four other provisions which should be noted here. First a subsection of the "Royalties" section deals with reprint rights. The reprint rights provision grants the publisher "the sole and exclusive right to sell reprint and translation rights in and to the work in book or serial form (full-length, condensed or abridged versions)." The author is to receive a royalty of 50% of "net receipts" on reprints. Second, the contracts provide a special royalty rate of 10%, 12% or 15% of "actual cash received by Publisher" for copies sold at a discount of 50% or greater. 2 In contrast to these first two provisions, royalties on ordinary sales are based on the retail price of copies sold. Third, the contracts contain an anti-assignment clause, which provides that "no assignment, voluntary or by operation of law, shall be binding on either of the parties without the written consent of the other party hereto." Fourth, the section headed "Accounting & Payments" provides in part as follows:
(A) Publisher agrees to render statements semi-annually ... showing an account of books actually sold [during the period]. The statement, which shall be accompanied by any payments due to Author by Publisher, shall [contain certain specified information relating to book sales]....
(B) Author shall have the right not more than once in any year, at his/her expense, ... to have the books and records of Publisher relevant to statements rendered under this Agreement covering the preceding two (2) years examined by a certified public accountant and to obtain extracts or photocopies of portions of such books and records.... 3
The district court interpreted the arbitration clause to exempt from the requirement of arbitration any cause of action that "involves failure to pay royalties as an essential element." The district court relied upon the intertwining doctrine. It found that the arbitrable and nonarbitrable issues were "inextricably intertwined" and that it might, at its option, (1) stay arbitration where resolution of the nonarbitrable issues will resolve the arbitrable issues, (2) stay litigation where resolution of the arbitrable issues will resolve nonarbitrable issues, or (3) hear both the arbitrable issues and nonarbitrable issues. It chose the third option. It applied these principles to each count of the Authors' 16-count complaint, denied the defendants' motion to stay the litigation pending arbitration as to all 16 counts of the Authors' complaint, and set the case for trial.
Resolution of this appeal requires a general examination of the 16 claims 4 asserted in the Authors' complaint.
Count One alleges that the following acts resulted in a breach of the Authors' publishing contracts with Donning: assignment of publishing rights to Schiffer Publishing without the Authors' consent; Donning's failure to provide marketing and advertising personnel and to retain the right to direct promotion of the Authors' books; failure to provide proper royalty account statements to any of the Authors with the exception of Mary Summer Rain; failure to pay royalties; sale of Donning's entire inventory of Authors' books.
Count Two alleges that Donning's refusal to provide a copy to Winter Robinson, one of the authors, of any contracts transferring rights between Donning and Schiffer was a breach of her publishing contract.
Count Three alleges that Schiffer Publishing's failure to place a copyright notice on 60,000 volumes of Mary Summer Rain's books was a breach of her publishing contract.
Count Four alleges that Donning improperly deducted certain royalties from the account of Jan Carlton, one of the authors, in breach of her publishing contract.
Count Five alleges that the defendants' actions in causing Donning to assign the Authors' publishing contracts to Schiffer Publishing was a conspiracy to cause a breach of those contracts.
Count Six alleges that certain defendants' actions in forcing Donning to breach the Authors' contracts was a tortious interference with the contractual relationship between Donning and the Authors.
Count Seven alleges that the defendants' actions with respect to the contracts in question were a fraud against all of the Authors.
Counts Eight through Twelve allege that certain actions of the defendants with respect to these actions under the contracts in question amounted to fraud against those authors.
Count Thirteen alleges that the defendants violated the Racketeer Influenced and Corrupt Organizations Act (RICO) by sending letters and making telephone conversations in furtherance of their scheme to defraud the Authors.
Count Fourteen alleges that the defendants conspired to commit copyright infringement by causing an assignment of the Authors' publishing contracts in violation of the terms of those contracts.
Count Fifteen alleges that all of the defendants entered into the transaction with knowledge that Schiffer Publishing would infringe the Authors' copyrights by publishing their books in violation of the terms of their publishing contracts, and that Schiffer Publishing actually infringed the Authors' copyrights by printing, marketing and selling their books, and by printing new editions of their books, without their consent and in violation of their publishing contracts with Donning.
Count Sixteen alleges that the actions of the defendants with respect to the contracts involved amount to a conversion of the Authors' rights under the publishing contracts.
In addition, the complaint makes a number of general factual allegations. Of particular relevance, the complaint alleges that Donning transferred all of the current inventory of the Authors' books to Schiffer at discounts of 70% to 85% so that Schiffer could resell these books at their full value without paying any additional royalties to the Authors. The complaint also alleges that Schiffer agreed to pay Donning royalties to be computed on the wholesale selling price, instead of the retail price as required by the Authors' contracts with Donning, and that Donning planned to pay the Authors only one-half of the royalties received from Schiffer as a reprint, also in violation of the Authors' publishing contracts. Finally, the complaint alleges that the defendants entered into the Donning/Schiffer agreement "in spite of the fact that the royalty schedule contained in such agreements would result in the Plaintiffs receipt of a fraction of the royalties they would have otherwise received had the rights not been...
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