Arista Records LLC et al v. Lime Wire LLC et al

Filing 28

MEMORANDUM OF LAW in Support re: 27 MOTION to Amend/Correct ("Notice Of Motion For Leave To File An Amended Complaint"). MOTION to Amend/Correct ("Notice Of Motion For Leave To File An Amended Complaint"). ("Plaintiffs/Counterclaim Defendants' Memorandum Of Law In Support Of Motion For Leave To File An Amended Complaint"). Document filed by BMG Music, Capitol Records, Inc., Elektra Entertainment Group, Inc., Interscope Records, Laface Records LLC, Motown Record Company, L.P., Arista Records LLC, Priority Records LLC, Sony BMG Music Entertainment, UMG Recordings, Inc., Virgin Records America, Inc., Warner Bros. Records Inc., Atlantic Recording Corporation. (Forrest, Katherine)

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK A R I S T A RECORDS LLC; ATLANTIC RECORDING C O R P O R A T I O N ; BMG MUSIC; CAPITOL RECORDS, INC.; ELEKTRA ENTERTAINMENT GROUP INC.; INTERSCOPE RECORDS; LAFACE RECORDS LLC; MOTOWN RECORD COMPANY, L.P.; PRIORITY RECORDS LLC; SONY BMG MUSIC E N T E R T A I N M E N T ; UMG RECORDINGS, INC.; VIRGIN RECORDS AMERICA, INC.; and W A R N E R BROS. RECORDS INC., Plaintiffs/Counterclaim Defendants, v. ECF CASE 06 Civ. 05936 (GEL) L I M E GROUP LLC; MARK GORTON; and GREG BILDSON, Defendants, and L I M E WIRE LLC, Defendant/Counterclaim Plaintiff. PLAINTIFFS/COUNTERCLAIM DEFENDANTS' MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR LEAVE TO FILE AN AMENDED COMPLAINT June 20, 2007 CRAVATH, SWAINE & MOORE LLP Attorneys for Plaintiffs/Counterclaim Defendants 825 Eighth Avenue New York, NY 10019 (212)474-1000 REDACTED VERSION - COMPLETE VERSION FILED UNDER SEAL TABLE OF CONTENTS Preliminary Statement Statement of Facts Argument I. II. Conclusion Plaintiffs Have Met The Rule 16(b) Good Cause Requirement Plaintiffs' Amendment Is Proper Under Rule 15(a) 1 3 5 6 8 13 REDACTED VERSION - COMPLETE VERSION FILED UNDER SEAL -i- TABLE OF AUTHORITIES Cases Block v. First Blood Assocs.. 988 F.2d 344 (2d Cir. 1993) Dougherty v. Town of North Hempstead Bd. of Zoning Appeals. 282 F.3d 83 (2d Cir. 2002) Gaetano Assocs. Ltd, v. Artee Collections, Inc.. No. 05 Civ. 3329, 2006 WL 3026080 (S.D.N.Y. Oct. 25, 2006) Lincoln v. Potter. 418 F. Supp. 2d 443 (S.D.N.Y. 2006) Marcus v. Kane. 18 F.2d 722 (2d Cir. 1927) Merrill Lynch & Co.. Inc. v. Allegheny Energy. Inc.. 229 F.R.D. 441 (S.D.N.Y. 2004) Metro-Goldwyn-Maver Studios Inc. v. Grokster. Ltd.. 545 U.S. 913 (2005) Nernev v. Valente & Sons Repair Shop. 66 F.3d 25 (2d. Cir. 1995) Parker v. Columbia Pictures Indus.. 204 F.3d 326 (2d Cir. 2000) Permatex, Inc. v. Loctite Corp.. No. 03 Civ. 943, 2004 WL 1354253 (S.D.N.Y. June 17, 2004) Safeway. Inc. v. Sugarloaf P'ship. LLC. 423 F. Supp. 2d 531 (D. Md. 2006) Shelly v. Doe. 671 N.Y.S.2d 803 (N.Y. App. Div. 1998) Silva Run Worldwide Ltd, v. Gaming Lottery Corp., 215 F.R.D. 105 (S.D.N.Y. 2003) Sithon Maritime Co. v. Holiday Mansion. 177 F.R.D. 504 (D. Kan. 1998) Sullivan v. Kodsi. 373 F. Supp. 2d 302 (S.D.N.Y. 2005) TMS Entm't. Ltd, v. Madison Green Entm't Sales Inc.. No. 03 Civ. 517, 2007 WL 1053371 (S.D.N.Y. April 9, 2007) Too. Inc. v. Kohl's Dep't Stores. Inc., 210 F. Supp. 2d 402 (S.D.N.Y. 2002) Topps Co.. Inc. v. Cadbury Stani S.A.I.C.. No. 99 Civ. 9437, 2002 WL 31014833 (S.D.N.Y. Sept. 10,2002) U.S. v. 58th St. Plaza Theatre. Inc.. 287 F. Supp. 475 (S.D.N.Y. 1968) 11 6,8 7 6 9 5 2, 3, 4, 8, 12 6 5 6,7 7 9 11 7 9 10 8 7 9 REDACTED VERSION - COMPLETE VERSION FILED UNDER SEAL -ii- Statutes and Rules Fed. R. Civ. P. 15(a) Fed. R. Civ. P. 16(b) Fed. R. Civ. P. 19(a) Fed. R. Civ. P. 21 N.Y. Debtor and Creditor Law 270 (2007) N.Y. Debtor and Creditor Law 276 (2007) N.Y. Debtor and Creditor Law 279 (a) (2007) 1, 5, 6, 8, 12 1, 5, 6, 7 1, 9 1 9 1, 3, 9, 13 9 REDACTED VERSION - COMPLETE VERSION FILED UNDER SEAL -in- PRELIMINARY STATEMENT Plaintiffs/Counterclaim Defendants' hereby move pursuant to Rules 15(a), 16(b), 19(a) and 21 of the Federal Rules of Civil Procedure to file an amended complaint joining the M.J.G. Lime Wire Family Limited Partnership ("M.J.G. Ltd. Partnership" or "Ltd. Partnership") as a defendant and to include allegations relating to and claims for fraudulent conveyance under Section 276 of the New York Debtor and Creditor Law against Mark Gorton and for unjust enrichment under the common law of New York against the M.J.G. Lime Wire Family Limited Partnership. Defendants Lime Group LLC, Mark Gorton, Greg Bildson and defendant/counterclaim plaintiff Lime Wire LLC (collectively "defendants") have developed and promoted an Internet file-sharing system ("the LimeWire system") that has become one of the world's most notorious tools for the infringement of plaintiffs' copyrighted sound recordings. Indeed, defendants designed and intended the LimeWire system to be utilized specifically for that unlawful purpose. Although plaintiffs' representatives requested in September 2005 that defendants "cease and desist" from engaging in further unlawful activities, defendants refused to do so, and plaintiffs filed this suit on August 4, 2006. During the course of discovery, plaintiffs learned that defendant Mark Gorton's unlawful conduct extended well beyond the massive infringement of plaintiffs' copyrighted works-- REDACTED Plaintiffs/Counterclaim Defendants are Arista Records LLC; Atlantic Recording Corporation; BMG Music; Capitol Records, Inc.; Elektra Entertainment Group Inc.; Interscope Records; LaFace Records LLC; Motown Record Company, L.P.; Priority Records LLC; Sony BMG Music Entertainment; UMG Recordings, Inc.; Virgin Records America, Inc.; and Warner Bros. Records Inc. (collectively, "plaintiffs"). REDACTED VERSION - COMPLETE VERSION FILED UNDER SEAL -1- 1 REDACTED Plaintiffs' motion to amend should be granted, as good cause exists to amend the Complaint. Once in possession of facts to support their additional claims, plaintiffs promptly sought leave to amend. Defendants did not produce the documents that form the necessary basis of plaintiffs' additional claims until April 2007--after the passage of the Court's deadlines for the joinder of additional parties (January 31, 2007) and for the filing of amended pleadings (March 9, 2007). Thereafter, plaintiffs sought additional evidence to support their claims. In May 2007, plaintiffs obtained the Declaration of Vincent Falco, which describes Mr. Gorton's fraudulent scheme to insulate his assets from the record companies.3 Moreover, the facts supporting plaintiffs' claims are compelling. Mr. Gorton created a partnership--the M.J.G. Ltd. Partnership, of which he is the general partner--and Plaintiffs' proposed Amended Complaint is attached as Exhibit A to the Declaration of Katherine B. Forrest, executed June 19, 2007 ("Forrest Decl."), submitted herewith. Exhibit B to that Declaration is a "blacklined" copy of the Amended Complaint identifying the paragraphs that have been modified in or added to the Complaint, dated August 4, 2006. Plaintiffs' Amended Complaint includes a corrected Schedule A to reflect certain changes in that schedule. Vincent Falco is the former Chief Executive Officer of Free Peers, Inc., a company that distributed the peer-to-peer software application BearShare. See Forrest Decl. Ex. C (Declaration of Vincent Falco ("Falco Decl.")). REDACTED VERSION - COMPLETE VERSION FILED UNDER SEAL -23 2 placed his personal assets into the Ltd. Partnership. REDACTED Plaintiffs' claims, accordingly, will withstand a motion to dismiss and therefore are not futile. Finally, defendants will not be prejudiced by the proposed amendment. Discovery is ongoing, and the parties recently sought jointly to extend discovery for several additional months. In addition, defendants have not yet produced the majority of their responsive documents. For all of these reasons, plaintiffs respectfully submit that this Court should grant their motion for leave to file an amended complaint to join the M.J.G. Ltd. Partnership as a defendant and to include allegations relating to and claims for fraudulent conveyance under Section 276 of the New York Debtor and Creditor Law against Mark Gorton and for unjust enrichment under the common law of New York against the M.J.G. Ltd. Partnership. STATEMENT OF FACTS Plaintiffs filed their Complaint on August 4, 2006. Defendants answered and filed their Counterclaims on September 25, 2006. On October 11, 2006, the Court adopted a Civil Case Management Plan and scheduling order, which provided that joinder of additional REDACTED VERSION - COMPLETE VERSION FILED UNDER SEAL -3- parties could be accomplished until January 31, 2007, and amended pleadings could be filed until March 9, 2007. Defendants subsequently amended their Counterclaims on November 17, 2006. Plaintiffs served document requests on defendants on October 31, 2006. On April 6, 2007, defendants produced documents responsive to the October 31 requests. Plaintiffs have ascertained the following facts through discovery: REDACTED After the Supreme Court's decision in Grokster, Mr. Gorton spoke to a business acquaintance named Mr. Falco about steps Mr. Gorton had taken to insulate his personal assets from potential judgment creditors. In that conversation, Mr. Gorton said that "he was not worried about being sued", since he had insulated his assets. See Forrest Decl. Ex. C, 15 (Falco Decl.). He said that he "had created a family limited partnership ... [and] he had put his personal assets into the family limited partnership so that the record companies could not get his money if they sued him and won". See i
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