Fifty-Six Hope Road Music Limited
Filing
157
OPINION & ORDER: that UMGs motion to exclude evidence of underpayment of royalties prior to June 1, 2004 or between July 1, 2005 and June 30, 2006 is granted. UMGs motion to preclude admissions by UMG employees is granted. Its motion to preclude test imony by individual plaintiffs is denied. UMGs motion to preclude the testimony of Hayes, Levine, Lowry, Simon and Levy is denied. UMGs motion to preclude evidence regarding the relative costs of digital downloads is denied; its motion to preclude evidence regarding the equitable value of services by foreign licensees is granted. UMG's motion to preclude the plaintiffs' claim for underpayment of public performance fees is granted. (Signed by Judge Denise L. Cote on 8/31/2011) (ft)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------------X
:
FIFTY-SIX HOPE ROAD MUSIC LTD., CEDELLA :
MARLEY, DAVID MARLEY, JULIAN MARLEY,
:
KAREN MARLEY, RITA MARLEY, ROHAN
:
MARLEY,
:
STEPHEN MARLEY, DAMIAN MARLEY,
:
STEPHANIE MARLEY, and ROBERT MARLEY,
:
Plaintiffs,
:
:
-v:
:
UMG RECORDINGS, INC.,
:
Defendant.
:
:
----------------------------------------X
08 Civ. 6143 (DLC)
OPINION & ORDER
Appearances:
For Plaintiffs:
Bonnie E. Eskenazi
Ricardo P. Cestero
Rachel Valadez
1900 Avenue of the Stars, 21st Floor
Los Angeles, CA 90067
For Defendant:
Andrew H. Bart
Joseph J. McFadden
M. Mitchell Oates
Jenner & Block LLP
919 Third Avenue, 37th Floor
New York, NY 10022
DENISE COTE, District Judge:
This Opinion addresses motions in limine in an action to
recover unpaid royalties on the sound recordings of the Jamaican
reggae artist Bob Marley.
The plaintiffs are Marley’s widow and
children and their wholly-owned company, Fifty-Six Hope Road
Music Ltd. (“Fifty-Six”); their royalty accounting claims
concern the interpretation of a 1992 master agreement governing
the defendant UMG Recordings, Inc. (“UMG”) rights to the Marley
recordings.
On January 21, 2011, UMG filed motions in limine for an
order (1) excluding evidence of claims for additional royalties
allegedly owed to the plaintiffs by UMG for the periods prior to
July 1, 2004 or between July 1, 2005 and June 30, 2006; (2)
excluding the testimony of Thomas Hayes (“Hayes”), Eric Levine
(“Levine”), Leonard Lowry (“Lowry”), Michelle Simon (“Simon”),
and Alain Levy (“Levy”) on the ground that the plaintiffs did
not timely disclose these witnesses; (3) excluding evidence of
an alleged differential in the distribution costs associated
with “hard” goods such as records versus digital downloads; (4)
excluding evidence of the equitable value of the services
rendered by foreign entities which are licensed by UMG to
distribute music abroad; (5) excluding testimony by UMG
employees concerning the interpretation of the royalty agreement
with an effective date of July 1, 1992 (the “1992 Agreement”);
(6) holding that New York law, rather than English law, governs
the interpretation of the 1992 Agreement; (7) precluding all
trial testimony from the individual plaintiffs; and (8)
precluding the plaintiffs from pursuing a claim against UMG for
the underpayment of royalties on public performance fees.
By
Order of February 28, the Court held that New York law governs
2
the interpretation of the 1992 Agreement and thereby granted
UMG’s sixth motion in limine.
UMG’s motion to exclude evidence of underpayment of
royalties prior to June 1, 2004 or between July 1, 2005 and June
30, 2006 is granted.
employees is granted.
UMG’s motion to preclude admissions by UMG
Its motion to preclude testimony by
individual plaintiffs is denied.
UMG’s motion to preclude a
claim for the underpayment of public performance fees is
granted.
UMG’s motion to preclude the testimony of Hayes,
Levine, Lowry, Simon and Levy is denied.
UMG’s motion to
preclude evidence regarding the relative costs of digital
download is denied; its motion to preclude evidence regarding
the equitable value of services by foreign licensees is granted.
1.
UMG’s Motion to Enforce Contractual Incontestability
Provisions
UMG argues that the 1992 Agreement incorporates a threeyear incontestability provision by reference to prior agreements
between the parties or their predecessors and that accordingly
the plaintiffs should be precluded from pursuing claims where
they failed to timely object to the royalty statements provided
to them by UMG.
The plaintiffs contend that there is no
incontestability provision to bar their claims and, if there is,
3
that UMG has waived the right to enforce it.
UMG’s motion to
enforce the incontestability provisions is granted.
A detailed chronology of the various royalty agreements
entered into by the parties can be found in the Court’s summary
judgment opinion.
Fifty-Six Hope Road Music Ltd. et al. v. UMG
Recordings, Inc., No. 08 Civ. 6143 (DLC), 2010 WL 3564258, at
*1-*6 (S.D.N.Y. Sept. 10, 2010) (hereinafter the “September 10
Opinion”).
As set forth in the September 10 Opinion, the first
agreement between the parties, the 1972 Agreement, contained an
incontestability provision which provided that royalty
statements were binding “unless specific objection in writing
stating the basis thereof is given to the Company within twelve
months from the date the statement in question is rendered.”
The 1974 Agreement also contained an incontestability provision,
but this provision extended the time for objections to three
years after the royalty statement was rendered.
The 1975 and
1983 Agreements contained three-year incontestability
provisions, which were incorporated by reference into the 1984
Agreement.
The 1986 Agreement did not contain an
incontestability provision; it stated, however, that royalties
“shall be calculated and computed on the same basis mutatis
mutandis” as the 1984 Agreement.
By an agreement with an
effective date of January 1, 1990, the rights in the prior
4
agreements were transferred to a successor Marley entity,
Stichting Bob Marley.
The 1992 Agreement does not contain an incontestability
provision.
It states that it “shall constitute an amendment to
the 1990 Agreement, and except as expressly amended hereby, all
provisions of the 1990 Agreement shall remain in full force and
effect.”
Two agreements followed the 1992 Agreement, with
effective dates of August 31, 1999 (the “1999 Agreement”) and
April 10, 2001 (the “2001 Agreement”).
Neither of these
agreements contained incontestability provisions, but they
explicitly referenced the earlier agreements and defined them as
the “Marley Agreements.”
The 1999 Agreement provides that
“[e]xcept as expressly modified hereby, the Marley Agreements
shall remain in full force and effect and are hereby ratified
and confirmed.”
The 2001 Agreement contains a similar
provision.
New York courts have routinely enforced contractual
incontestability clauses in life insurance policies.
See, e.g.,
New England Mut. Life Ins. Co. v. Doe, 93 N.Y.2d 122, 128
(1999).
In Miller v. Columbia Records, 415 N.Y.S.2d 869, 870-71
(1st Dept. 1979), the Appellate Division upheld a one-year
incontestability provision in the plaintiff’s royalty agreement
with the defendant recording company.
The Miller court reasoned
that “[t]his provision is binding and bars all claims for any
5
period antedating one year before rendition of each statement.
Otherwise, the contract would be without purpose or effect.”
Id. at 871 (citation omitted).
The 1992 Agreement is characterized as an “amendment” to
the 1990 Agreement, which incorporates by reference the
provisions of the 1972, 1974, 1975, 1983, 1984, and 1986
Agreements.
The plaintiffs argue that because the 1972
Agreement contains a one-year incontestability provision, while
the 1974, 1975, and 1983 Agreements contain a three-year
provision (which is incorporated by reference into the 1984
Agreement), it is unclear which provision, if any, is
incorporated into the 1992 Agreement.
Under New York law,
General canons of contract construction require
that where two seemingly conflicting contract
provisions reasonably can be reconciled, a court
is required to do so and to give both effect.
This doctrine applies with equal force where two
documents are contemporaneous and related or
where one incorporates the terms of the other.
Seabury Const. Corp. v. Jeffrey Chain Corp., 289 F.3d 63, 69 (2d
Cir. 2002) (citation omitted).
The 1992 Agreement is most logically understood as a master
agreement which standardized the royalty rates and methods of
calculation of royalties for the sound recordings produced under
all prior agreements.
Thus, the 1992 Agreement would logically
have adopted one incontestability provision to govern all future
royalty statements.
The most reasonable way to read the 1992
6
Agreement is as adopting the three-year incontestability
provision, which was contained or incorporated in four prior
agreements, to govern any objections to royalty statements
issued under its terms.
The plaintiffs’ argument that UMG has waived any right to
enforcement of the incontestability provision is unavailing.
The plaintiffs point to an agreement dated February 20, 1987
between Bob Marley Music Limited B.V., Island Records, Inc. and
Island Records, Ltd.
The agreement refers to a request for an
audit of Island Records and states that “in the event that the
audit gives rise to a claim for royalties due which cannot be
resolved except by judicial intervention, Island Records will
honor its long-standing commitment to us that it will not seek
to assert the passage of time as a bar to any portion of the
claim.”
Plaintiffs do not suggest, however, that the current
dispute arose out of the audit referenced in the 1987 agreement.
Further, an agreement not to assert the affirmative defense of
incontestability for any claim for unpaid royalties resulting
from an audit conducted in 1987 cannot be construed as a waiver
of any future right to enforcement of the incontestability
provision.
The plaintiffs do not dispute that they first objected to
the royalty statements for the period January 1, 2001 to June
30, 2005 by letter of January 8, 2008.
7
The three-year
incontestability provision bars all objections to royalty
statements issued prior to January 8, 2005, which is three years
prior to the first written objection by the plaintiffs.
The
plaintiffs later claimed underpayment of royalties for the
period July 1, 2005 through June 30, 2009 by letter of March 30,
2010.
Any claims for underpayment of royalties for the period
between January 8, 2005 and March 30, 2007, three years prior to
the March 30, 2010 letter, are also barred by the three-year
incontestability provision.
2.
UMG’s Motion to Preclude the Testimony of Hayes, Levine,
Lowry, Simon and Levy
UMG requests that the Court preclude the testimony of
Hayes, Levine, Lowry, Simon and Levy for failure to timely
disclose these witnesses pursuant to Rule 26(a), Fed. R. Civ. P.
The motion is denied.
After the filing of its motion on January 21, 2011, UMG
requested by letter of June 14 that the Court order plaintiffs
to disclose the nature of their contacts with Hayes, Levine,
Lowry and Levy.
UMG advised the Court that each of these four
witnesses had assisted in the negotiation of the royalty
agreements at issue as an officer, director or attorney for UMG.
UMG also sought the extent of the plaintiffs’ contacts with
Chris Blackwell (“Blackwell”), a former officer and director of
8
Island Records, Inc.
At a telephone conference on June 21, the
Court ordered the plaintiffs to inform UMG before initiating any
further communication with the five witnesses.
The Court
further advised UMG that it could depose any of the five
witnesses in order to learn the nature of the witnesses’
conversations with the plaintiffs.
Because the Court has given
UMG an opportunity to depose Hayes, Levine, Lowry, and Levy in
the months prior to the trial date of December 12, 2011, thus
curing any prejudice stemming from the plaintiffs’ failure to
timely disclose these witnesses, the motion to preclude the
testimony of these witnesses is denied.
UMG represents that it was first notified that the
plaintiffs intended to call Simon as a witness on January 17,
2011, four days before the filing of the pretrial order on
January 21.
Simon is an employee of Berdon LLP, the auditing
firm that conducted the royalty investigations on behalf of the
plaintiffs.
Because UMG will have ample opportunity to depose
Simon if it desires prior to the start of trial on December 12,
2011, the motion to preclude Simon’s testimony is denied.
3.
UMG’s Motion to Preclude Evidence of Relative Costs
UMG moves to preclude the plaintiffs from presenting
evidence regarding the relative costs of distributing digital
9
downloads versus more traditional goods such as records and CDs.
UMG’s motion is denied.
UMG argues that Paragraph 2 of the 1992 Agreement, which
governs royalty rates on the sale of records, also governs
royalties for digital downloads.
In its September 10 Opinion,
the Court found the language of the 1992 Agreement to be
ambiguous on this point.
Under New York law, extrinsic evidence
may be used to shed light on the parties’ intent in drafting the
contract where the Court has determined that the contract
language is ambiguous.
AP Energy Servs. Gas Holding Co v. Bank
of America, N.A., 626 F.3d 699, 729 n.14 (2d Cir. 2010).
Thus,
the parties are entitled to present extrinsic evidence of
industry custom and practice in the sale of digital downloads to
shed light on the parties’ intent in drafting the 1992
Agreement.
This includes evidence of the costs of distribution
of digital downloads compared with the costs of distribution of
records.
UMG argues that the parties could not possibly have
contemplated the advent of digital downloads at the time the
1992 Agreement was drafted; this is an argument more properly
explored at trial.
Accordingly, the motion is denied.
10
4.
UMG’s Motion to Preclude Evidence of Value of Foreign
Services
UMG moves to preclude the plaintiffs from presenting
evidence of the equitable value of services rendered by UMG’s
foreign affiliates in distributing digital downloads.
The
plaintiffs agree that neither party should be permitted to
introduce evidence regarding the services performed by UMG’s
foreign licensees or the value of such services.1
The plaintiffs
contend, however, that they should be permitted to argue that
the lack of any evidence on this point supports the theory that
UMG improperly dilutes its royalty payments by allowing its
affiliates to take large deductions.
Because the parties
consent to the exclusion of evidence regarding the value of
services provided by foreign affiliates, the plaintiffs will not
be permitted to make this argument at trial.
In the absence of
evidence, the plaintiffs’ proposed argument regarding dilution
would invite jury speculation and is barred.
5.
UMG’s Motion to Preclude Testimony of UMG Employees
UMG moves to exclude deposition testimony by Ping Hu
(“Hu”), the Vice President of Royalty Audits, and Cindy Oliver
1
The plaintiffs take the position that the evidence is
inadmissible because UMG withheld that information during
discovery. The plaintiffs failed to raise this issue with the
Court during discovery, however, despite having the opportunity
to do so.
11
(“Oliver”), the Senior Vice President of Royalties and
Copyrights, and emails authored by Hu and Charles Ciongoli
(“Ciongoli”), the Chief Financial Officer of UMG, all concerning
the interpretation of Paragraph 11 of the 1992 Agreement, which
the plaintiffs contend governs royalties on digital downloads.
UMG’s motion is granted.
Rule 801(d)(2)(D), Fed. R. Evid., excludes from the
category of hearsay, admissions by a party-opponent if the
statement was one “by the party's agent or servant concerning a
matter within the scope of the agency or employment, made during
the existence of the relationship.”
In order to introduce evidence of an out-of-court
statement as nonhearsay under Rule 801(d)(2)(D),
a party must lay a sufficient foundation by
establishing (1) the existence of the agency
relationship, (2) that the statement was made
during the course of the relationship, and (3)
that it relates to a matter within the scope of
the agency.
Marcic v. Reinauer Transportation Co., 397 F.3d 120, 128-29 (2d
Cir. 2005) (citation omitted).
The plaintiffs are precluded from introducing the
deposition testimony of Oliver regarding her understanding of
the term “digital downloads.”
The plaintiffs have not shown
that Oliver’s duties at UMG included the interpretation and
application of the 1992 Agreement to the payment of royalties on
digital downloads.
At her deposition, Oliver merely offered her
12
own general understanding of the phrase “digital downloads” and
did not testify that her day-to-day responsibilities involved
the interpretation of this phrase or the calculation of payments
under the 1992 Agreement.
Rule 408(a), Fed. R. Evid., provides that evidence of
“furnishing . . . a valuable consideration in compromising or
attempting to compromise [a] claim” is not admissible “to prove
liability for, invalidity of, or amount of a claim that was
disputed as to validity or amount, or to impeach through a prior
inconsistent statement or contradiction.”
Rule 408 codifies “a
fundamental rule . . . which essentially forbids a court from
basing adverse findings on a party’s concessions in settlement
negotiations.”
Rein v. Socialist People’s Libyan Arab
Jamahiriya, 568 F.3d 345, 351 (2d Cir. 2009).
The emails authored by Hu and Cignoli were sent to other
employees at UMG and concern UMG’s agreement of August 15, 2007
with the plaintiffs that, not withstanding UMG’s contention that
Paragraph 2 governs royalties on digital downloads, it would
prospectively pay royalties on the requested basis.
The
plaintiffs represent that they do not intend to offer Cignoli’s
email at trial.
To the extent that plaintiffs seek to introduce
Hu’s email and deposition testimony regarding the email to make
the argument that UMG has conceded that Paragraph 11 applies to
13
digital downloads, this argument is barred by Rule 408(a).
Accordingly, UMG’s motion is granted.
6.
UMG’s Motion to Preclude Testimony by Individual Plaintiffs
UMG moves to preclude the testimony of the ten individual
plaintiffs who are members of the Marley family, arguing that
the individual plaintiffs were not involved in the drafting or
negotiation of the 1992 Agreement and that they are not
currently involved in the mechanics of the payment of royalties
to Marley’s estate.
UMG’s motion is denied.
The plaintiffs indicate that one or more of them will
present non-cumulative testimony about the fame of Bob Marley,
the business and purpose of Fifty-Six, the relationship between
Fifty-Six and UMG, and to the extent necessary to respond to any
argument by UMG, the purpose for which they filed this lawsuit.
These matters will be addressed in more detail at the final
pretrial conference, but to the extent that an individual
plaintiff has non-cumulative, competent, and relevant testimony,
the plaintiff will be permitted to testify.
7.
UMG’s Motion to Preclude a Claim for Underpayment of Public
Performance Fees
UMG moves to preclude the plaintiffs from asserting a claim
for underpayment of public performance fees, arguing that this
claim was not raised in the plaintiffs’ third amended complaint.
14
The plaintiffs argue that their claim for public performance
fees is encompassed by the Fifth Cause of Action, which states
that
Beginning in 2002, and continuing through 2008, UMG
has breached the agreements that govern the
exploitation of Marley’s sound recordings with
Plaintiff Fifty-Six Hope Road by underreporting
royalties, including in the following ways . . . .
The complaint goes on to list specific examples of UMG’s
violation of the royalty agreements; it does not reference
underpayment of public performance fees.
This is insufficient
to put UMG on notice for a claim of underpayment of public
performance fees.
The plaintiffs also argue that UMG has been on notice of
this claim since at least March 30, 2010, after the close of
fact discovery in this case, when the plaintiffs produced an
audit report demonstrating the alleged underpayment.
Exhibit M
of the March 30 audit report is titled “Unreported Public
Performance Master Use Fees” and calculates additional royalties
due to the plaintiffs as a result of UMG’s receipt of fees for
the use of Marley’s music at public performances.
The plaintiffs have not identified any portions of their
initial disclosures, depositions, any requests for documents, or
any other discovery other than the March 30 audit report that
might have revealed to UMG that the plaintiffs were pursuing a
15
claim for underpayment of public performance fees.
If the Court
were to find that the March 30 audit report gave UMG fair notice
of the public performance fee claim, then fact discovery would
have to be extended for a significant period of time to allow
the parties to revise their discovery plans and conduct full
discovery of this claim.
Such expense and delay runs afoul of
Rule 1 of the Federal Rules of Civil Procedure and should not be
readily entertained.
Herbert v. Lando, 441 U.S. 153, 177
(1979). (“the discovery provisions, like all of the Federal
Rules of Civil Procedure, are subject to the injunction of Rule
1 that they be construed to secure the just, speedy, and
inexpensive determination of every action”).
Accordingly, UMG’s
motion is granted.
CONCLUSION
UMG’s motion to exclude evidence of underpayment of
royalties prior to June 1, 2004 or between July 1, 2005 and June
30, 2006 is granted.
employees is granted.
UMG’s motion to preclude admissions by UMG
Its motion to preclude testimony by
individual plaintiffs is denied.
UMG’s motion to preclude the
testimony of Hayes, Levine, Lowry, Simon and Levy is denied.
UMG’s motion to preclude evidence regarding the relative costs
of digital downloads is denied; its motion to preclude evidence
regarding the equitable value of services by foreign licensees
16
is granted.
UMG's mot
to preclude the plaintiffs' claim for
underpayment of public performance fees is granted.
SO ORDERED:
Dated:
New York, New York
August 31, 2011
D
United St
17
Judge
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