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

Filing 696

OPINION AND ORDER: #100244 Plaintiffs' motion is GRANTED. Defendants are precluded from offering evidence or argument at trial regarding their purported belief in the lawfulness of their conduct. SO ORDERED. (See OPINION AND ORDER as set forth) (Per Supvr. use scan date as file date) (Signed by Judge Kimba M. Wood on 4/14/2011) (lnl) Modified on 4/27/2011 (ajc).

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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ARISTA RECORDS LLC; ATLANTIC RECORDING
CORPORATION; ARISTA MUSIC, fka BMG
MUSIC; CAPITOL RECORDS, INC; ELEKTRA
ENTERTAINMENT GROUP INC; INTERSCOPE
RECORDS; LAFACE RECORDS LLC; MOTOWN
RECORD COMPANY, L.P.; PRIORITY RECORDS
LLC; SONY MUSIC ENTERTAINMENT, fka SONY
BMG MUSIC ENTERTAINMENT; UMG RECORDINGS,
INC; VIRGIN RECORDS AMERICA, INC.; and
WARNER BROS. RECORDS INC.,

06 CV 5936 (KMW)
OPINION AND ORDER

Plaintiffs,
-againstLIME GROUP LLC; LIME WIRE LLC; MARK
GORTON; GREG BILDSON; and M.J.G. LIME WIRE
FAMILY LIMITED PARTNERSHIP,
Defendants.
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KIMBA M. WOOD, U.S.D.J.:
I.

Introduction
On May 11, 2010, this Court granted summary judgment in favor of Plaintiffs on their

claims against Defendants LimeWire LLC (“LW”), Lime Group LLC (“Lime Group”), and Mark
Gorton (collectively, “Defendants”) for secondary copyright infringement. The Court found that
Defendants had induced multiple users of the LimeWire online file-sharing program
(“LimeWire”) to infringe Plaintiffs’ copyrights. In the Court’s Opinion and Order (as amended
on May 25, 2010), the Court detailed this case’s procedural and factual background, familiarity
with which is assumed. (See Dkt. Entry No. 223.)
The litigation is now in the damage phase, with a trial on damages scheduled for May 3,
2011. Plaintiffs have identified approximately 11,205 sound recordings that have allegedly been
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infringed through the LimeWire system. Of those, approximately 9,715 are sound recordings as
to which Plaintiffs have elected to seek statutory damages under Section 504(c)(1) of the
Copyright Act.1 See 17 U.S.C. § 504(c)(1). With respect to those 9,715 sound recordings,
Plaintiffs have submitted competent evidence (1) that all of the sound recordings were infringed
on the LimeWire system; and (2) that all of the sound recordings were owned by Plaintiffs. (See
Dkt. Entry No. 649.)
Plaintiffs have moved in limine to preclude Defendants from offering any argument or
evidence at the trial regarding Defendants’ purported good faith belief in the lawfulness of their
conduct. Plaintiffs base their motion on the fact that Defendants have repeatedly invoked
privilege to block Plaintiffs’ inquiry into any facts that may have served as the basis for
Defendants’ alleged good faith belief in the lawfulness of their conduct. For the following
reasons, Plaintiffs’ motion is GRANTED.
II.

Factual Background
Throughout the litigation, Defendants have asserted that they had a good faith belief with

respect to (1) the lawfulness of their conduct in operating LimeWire; and (2) the lawfulness of
their conduct in conveying assets into family limited partnerships (“FLPs”).
With respect to operating LimeWire, Mark Gorton has testified that it was his “feeling”
that “LimeWire was not at great legal risk.” (Klaus Decl. Ex. 1 at 126: 5-7.) Gorton further
stated that he had “a hard time” seeing LimeWire as “an illegal thing or something for which I’m
liable.” (Id. at 126:16-18.) Gorton described this thinking as his “state of mind.” (Id. at 126:
21-22) Plaintiffs contend that Defendants have invoked privilege to block any inquiry by
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Plaintiffs are also seeking to recover actual damages for approximately 1,490 sound recordings
from the pre-1972 period, for which statutory damages under the Copyright Act are concededly
not available.
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Plaintiffs into Defendants’ alleged good faith belief that their conduct in operating LimeWire
was lawful.
With respect to Gorton’s conveyance of assets into FLPs, Gorton has stated that he
retained a law firm to assist him “in estate and tax planning matters,” and that, after “listen[ing]
to their advice” he “set up five separate family limited partnerships including the MJG Lime
Wire Family Limited Partnership.” (Klaus Decl. Ex. 6, ¶ 6.) Gorton further stated that he “did
not conceive of this plan of utilizing family limited partnerships in order to avoid any potential
legal exposure from being sued by the plaintiffs in this lawsuit or anyone else . . . [because] at
the time these transactions took place . . . [he] did not believe that [LimeWire] . . . would be
sued for copyright infringement.” (Id. at ¶ 7.) Plaintiffs contend that, whenever they have
inquired into Gorton’s beliefs regarding his exposure to copyright liability at the time that he
conveyed assets into his FLPs, Defendants have invoked privilege to block that inquiry.
Plaintiffs contend that, having repeatedly blocked Plaintiffs from conducting any
discovery into their communications with counsel, Defendants cannot now, at trial, assert their
alleged good faith belief in the lawfulness of their conduct.
III.

Analysis
Plaintiffs are correct that a party may not assert that it believed its conduct was lawful,

and simultaneously claim privilege to block inquiry into the basis for the party’s state of mind or
belief. See United States v. Bilzerian, 926 F.2d 1285, 1292 (2d Cir. 1991) (finding that, by
asserting a good faith defense to securities fraud, Defendant had “assert[ed] a claim that in
fairness requires examination of the protected communications.”) Indeed, a party “cannot be
permitted, on the one hand, to argue that it acted in good faith and without an improper motive
and then, on the other hand to deny . . . access to the advice given by counsel where that advice

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. . . played a substantial and significant role in formulating actions taken by [the defendant].”
Pereira v. United Jersey Bank, 1997 WL 773716, at *6 (S.D.N.Y. Dec. 11, 1997). Accordingly,
“[a] party who intends to rely at trial on the advice of counsel must make a full disclosure during
discovery; failure to do so constitutes a waiver of the advice-of-counsel defense.” Vicinanzo v.
Brunschwig & Fils, Inc., 739 F. Supp. 891, 894 (S.D.N.Y. 1990) (emphasis added).
Defendants argue that Plaintiffs’ motion in limine is “no more than a disguised and
untimely motion to compel.” (Def. Opp. at 3.) This argument can be rejected outright. In filing
the instant motion, Plaintiffs are not seeking privileged communications; rather they are seeking
to preclude argument and testimony where Defendants have already blocked inquiry on the basis
of privilege. In any event, a motion to compel is not a prerequisite to invoking the Bilzerian rule.
Rather, Bilzerian provides that a party “who intends to rely at trial” on a good faith defense
“must make a full disclosure during discovery; failure to do so constitutes a waiver” of that
defense. Vicinanzo, 739 F. Supp. at 894. Indeed, courts in this circuit have followed Bilzerian
and blocked good faith defenses, without requiring the party seeking preclusion to move to
compel. For example, in E.G.L. Gem Lab Ltd. v. Gem Quality Institute, Inc., the defendant
“asserted good faith as a defense to willful [trademark] infringement and thus placed the
substance of his communications in issue and thereby waived the attorney-client privilege.” 90
F. Supp. 2d 277, 296 n. 133 (S.D.N.Y. 2000). The Court held that, “[h]aving blocked his
adversary from conducting discovery on this issue, [the defendant] will not now be heard to
advance reliance on counsel.” Id.
Defendants also argue that Gorton will be able to divorce his trial testimony regarding his
belief in the lawfulness of his conduct, from anything that his lawyers may have told him.
Defendants assert that, “[u]nlike in Bilzerian . . . Defendants will not defend against assertions

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that they acted willfully or engaged in [fraudulent] transactions by testifying that they relied
upon on [sic] the advice of counsel, or that their conduct was based on the advice of lawyers.”
(Def. Opp. at 8.) In other words, Defendants seem to be suggesting that Gorton’s belief in the
lawfulness of his own conduct come from some innate knowledge of copyright law, and not from
advice of counsel.
Defendants’ assertion that Bilzerian does not apply because they may not be relying on
advice of counsel for their good faith defense misreads the law. Defendants cite to In re County
of Erie, where the Court held that “the key to a finding of implied waiver . . . is some showing by
the party arguing for a waiver that the opposing party relies on the privileged communication as
a claim or defense or as an element of a claim or defense.” 546 F.3d 222, 228 (2d Cir. 2008).
However, the Erie Court noted that the Bilzerian Court was correct in finding that, if a defendant
“asserted his good faith, the jury would be entitled to know the basis of his understanding that his
actions were legal.” Id. Further, a decision issued after Erie makes clear that:
a party need not explicitly rely on advice of counsel to implicate the privileged
communications. Instead, advice of counsel may be placed in issue where, for example, a
party’s state of mind, such as his good faith belief in the lawfulness of his conduct, is
relied upon in support of a claim of defense. . . . [Because the] legal advice that a party
received may well demonstrate the falsity of its claim of good faith belief, waiver in these
instances arises as a matter of fairness.
Leviton Mfg. Co. Inc. v. Greenberg Trauig LLP, 2010 WL 4983183 (S.D.N.Y. Dec. 6, 2010), at
*3.
Moreover, as Plaintiffs note, “[e]ven if . . . Gorton’s beliefs about the lawfulness of his
conduct were actually separate from legal advice, . . . Plaintiffs still would be entitled to know if
Gorton ignored counsel’s advice.” (Pl. Reply Mem. at 9.) The Second Circuit has held that the
“failure to follow the advice of counsel given before infringement must factor into an assessment

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of an infringer's bad faith." InCI Stan Class Yacht Racing Ass'n v. Tommy Hilfiger, U.S.A.,
Inc., 80 F.3d 749, 754 (2d. Cir. 1996).
In sum, like many other courts have found, "it would be unfair for a party asserting
contentions [of good faith] to then rely on its privileges to deprive its adversary of access to
material that might disprove or undermine the party's contentions." Newsmarkets Partners, LLC
v. Sal. Oppenheim Jr. & Cie. S.C.A., 258 F.R.D. 95, 106 (S.D.N.Y. 2009).
IV.

Conclusion
For the foregoing reasons, Plaintiffs' motion is GRANTED. Defendants are precluded

from offering evidence or argument at trial regarding their purported belief in the lawfulness of
their conduct.
SO ORDERED.
Dated: New York, New York
April
2011

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G~I. {GiL-.., 11 . ( (t'yyrj
Kimba M. Wood
United States District Judge

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