Werbungs Und Commerz Union Austalt v. Collectors' Guild, Ltd.

• Decision Date: 18 April 1991
• Docket Number: No. 1365,D,1365
• Citation: 930 F.2d 1021
• Parties: WERBUNGS UND COMMERZ UNION AUSTALT, Plaintiff-Appellee, v. COLLECTORS' GUILD, LTD., Defendant-Appellant. ocket 90-7110.
• Court: U.S. Court of Appeals — Second Circuit

Page 1021

930 F.2d 1021

19 Fed.R.Serv.3d 799

WERBUNGS UND COMMERZ UNION AUSTALT, Plaintiff-Appellee, v. COLLECTORS' GUILD, LTD., Defendant-Appellant.

No. 1365, Docket 90-7110.

United States Court of Appeals Second Circuit.

Argued May 9, 1990.

Resubmitted Dec. 7, 1990.

Decided April 18, 1991.

Mahoney, Circuit Judge, concurred in part, dissented in part, and filed opinion.

Alvin K. Hellerstein (Winifred A. Sandler, Strook & Strook & Lavan, New York City, of counsel), for defendant-appellant.

Robert W. Cinque (James P. Cinque, Cinque and Cinque, New York City, of counsel), for plaintiff-appellee.

Before ALTIMARI and MAHONEY, Circuit Judges, and CARTER, Senior District Judge. ^*

ALTIMARI, Circuit Judge:

The dispute in the underlying action centers upon the allocation of profits earned by defendant-appellant Collectors' Guild, Ltd. ("Collectors' Guild") from the sale of lithographic reproductions of illustrations created by famed artist Salvador Dali. Pursuant to a contract with Collectors' Guild's assignor, Maecenas Press, Ltd. ("Maecenas"), plaintiff-appellee Werbungs Und Commerz Union Austalt ("Werbungs") claimed a right to one-half of these profits. After Collectors' Guild refused to recognize this claim, Werbungs commenced an action against Collectors' Guild in the United States District Court for the Southern District of New York seeking damages for, among other things, Collectors' Guild's alleged breach of contract.

Following trial on Werbungs' breach of contract claim, and a jury verdict finding Collectors' Guild liable for breach, the district court (Charles H. Tenney, Judge ) entered a judgment awarding damages to Werbungs in the amount of $717,915. Collectors' Guild appeals from this judgment. On appeal, Collectors' Guild contends, among other things, that the district court erred by: (1) submitting the issue of contract interpretation to the jury; (2) improperly instructing the jury on contract interpretation; and (3) improperly sanctioning Collectors' Guild through certain evidentiary rulings and jury instructions.

For the reasons set forth below, we affirm the judgment of the district court on the issue of liability but reverse and remand for a new trial on the issue of damages.

BACKGROUND

On May 15, 1968, Werbungs, a Liechtenstein corporation engaged in the business of buying and selling art works and reproductions, commissioned artist Salvador Dali to create twelve original watercolor illustrations based on Lewis Carroll's Alice's Adventures in Wonderland. Dali was paid $5,000 and agreed that Werbungs "shall have the sole and exclusive right throughout the world to make, print, publish, sell and distribute copies or reproductions In 1975, Maecenas assigned its rights under the January 29 contracts to Collectors' Guild, a manufacturer and marketer of art reproductions. Nine years later, Collectors' Guild commissioned a new series of lithographic reproductions of the Dali illustrations. These lithographs were sold through promotions by American Express, Diners Club and Collectors' Guild itself. Although the actual profits earned are disputed, it was established that thousands of the lithographs were sold. Werbungs apparently was unaware of Collectors' Guild's venture and neither approved of nor participated in it. Upon learning of the venture, however, Werbungs brought the underlying action complaining, among other things, that Collectors' Guild had breached the January 29 contracts. Werbungs specifically claimed that under the terms of the first contract, it was entitled to fifty percent of any profits earned by Collectors' Guild from the sale of the lithographs.

                of any one or more of the Water Colors."    On January 29, 1969, Werbungs negotiated and signed in New York two separate written contracts with Maecenas to produce and market two editions of Alice's Adventures in Wonderland (collectively, the "January 29 contracts").  Both editions were to incorporate the twelve Dali illustrations.  The first January 29 contract ("first contract") stated that "[Werbungs] and Maecenas shall be the copyright owners of each edition" and that "[t]he rights and income of any future publication of the illustrations or the etching shall be shared equally by [Werbungs] and Maecenas."    The first contract further provided that "[f]or a period of 3 years following publication of the aforesaid editions, no reproduction of any of the illustrations shall be made without the consent of [Werbungs] and Maecenas."    The second January 29 contract ("second contract"), which was executed later the same day and which incorporated the first contract by reference, stated that "[Werbungs] sells, conveys and assigns to Maecenas Press Ltd., its successors and assigns all of [Werbungs'] right, title and interest in said two editions and all earnings therefrom for $60,000."    Maecenas subsequently arranged for the publication and distribution of the two Dali-illustrated editions
                

Collectors' Guild moved for summary judgment, and Werbungs filed a cross-motion for summary judgment. See Fed.R.Civ.P. 56. Each claimed that the January 29 contracts were unambiguous and warranted entry of judgment on its behalf. Both parties agreed that under the first contract, Werbungs was entitled to fifty percent of the profits obtained as a result of any subsequent publication of the Dali illustrations. Thus, the crucial issue was the meaning of the clause in the second contract that provided that "[Werbungs] hereby sells, conveys and assigns to [Maecenas] ... all of [Werbungs'] right, title and interest in said two editions and all earnings therefrom." According to Werbungs, the language merely provided for the sale of its commercial interest in the two book editions as such and did not affect its interest in receiving profits from the future publication of the twelve Dali illustrations. In contrast, Collectors' Guild claimed that Werbungs' assignment of its rights in the two editions included the right to reproduce the Dali illustrations contained in the editions. Thus, according to Collectors' Guild, Werbungs implicitly relinquished any claim to profits from the future publication of the illustrations. In July 1988, Judge Pierre N. Leval, the district judge to whom the case was first assigned, reviewed the January 29 contracts, concluded that the terms at issue were ambiguous and, therefore, denied the motion and cross-motion. Werbungs Und Commerz Union Austalt v. Collectors' Guild, Ltd., 84 Civ. 7393, slip op. at 4 (S.D.N.Y. July 12, 1988).

During discovery, Werbungs sought to discover various documents relating to revenues derived from the sale of the Dali lithographs. In June 1986, Werbungs served Collectors' Guild with a document request pursuant to Fed.R.Civ.P. 34. Over one year later, Collectors' Guild had not complied with the request. By letter dated June 15, 1987, Werbungs sought a court order, pursuant to Fed.R.Civ.P. 37, compelling Collectors' Guild to comply with Werbungs' Subsequently, during the deposition of Max Munn, Collectors' Guild's former president, Werbungs' counsel again inquired about the existence of business records that reflected the sales and inventory of the lithographic reproductions. In response, Munn stated that an accurate accounting of sales could not be produced because Collectors' Guild only maintained its sales records for a six-month period. However, Munn conceded that the relevant records might be "reconstructed" from other sources. At the close of the deposition, Werbungs' counsel expressed his intention to serve interrogatories on Munn. The interrogatories, however, were never served.

                discovery request.  In response, Collectors' Guild submitted a letter to the district court contending that discovery should not proceed until the court ruled on the parties' outstanding motions.  The district court returned Collectors' Guild's letter with the signed endorsement "Discovery should go forward."    By letter dated August 24, 1987, Collectors' Guild asked for reconsideration.  On September 15, 1987, Judge Leval returned Collectors' Guild's letter with the signed endorsement "The application for reconsideration is denied.  Defendants are directed to proceed with discovery and comply without delay with the production demands."    Collectors' Guild subsequently served Werbungs with a written response to Werbungs' Rule 34 request.  In response to requests for documents pertaining to sales revenue and inventory, Collectors' Guild claimed that such information was confidential and that its disclosure might be competitively harmful.  Werbungs made no further effort to obtain this information
                

The case was thereafter assigned to District Judge Tenney, who presided at the jury trial. During the course of the trial, the parties elicited contradictory testimony regarding the meaning of the second contract. Jean Schneider, Werbungs' president, claimed that Werbungs had agreed to sell only its commercial interest in the two editions, not its interest in receiving a share in the income from the future exploitation of the illustrations. J. Robert LeShufy, an officer and director of Maecenas, asserted that Maecenas had contracted to purchase all rights in the two editions--including Werbungs' right to receive income from the future reproduction of the Dali illustrations.

Another source of contention at trial was the actual revenues produced from the sales of the Dali lithographs. Collectors' Guild's records showed that the American Express and Diners Club promotions had yielded a gross income of approximately $2,413,954. Once the cost of the lithographs ($190 each), framing ($187.28 each) and other expenses were deducted, Collectors' Guild asserted a net loss of $65,000. With respect to its own catalogue promotions, however, Collectors' Guild was unable to substantiate its sales or revenues. Werbungs countered that Collectors' Guild had inflated its cost figures and underestimated the number of...