Artists Rights Enforcement Corporation v. King et al
Filing
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OPINION AND ORDER: re: 18 MOTION to Dismiss Plaintiff's Amended Complaint filed by Benjamin E King, Jr., Angela Matos, Betty King, Terris Cannon, Estate of Benjamin E. King. For the foregoing reasons, the motion to dismiss is G RANTED IN PART, with respect to the Sale Agreement, and DENIED IN PART, as regards the Audit Agreement. Defendants shall respond to AREC's remaining claims on or before January 3, 2017. The Clerk of Court is directed to close the motion at Docket Number 18. SO ORDERED. (Signed by Judge J. Paul Oetken on 12/12/2016) (ama)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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ARTISTS RIGHTS ENFORCEMENT CORP., :
:
:
Plaintiff,
:
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-v :
THE ESTATE OF BENJAMIN E. KING
:
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p/k/a BEN E. KING, by its duly appointed
administrator TERRIS CANNON, et al.,
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Defendants. :
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16-CV-1121 (JPO)
OPINION AND ORDER
J. PAUL OETKEN, District Judge:
Plaintiff Artists Rights Enforcement Corporation (“AREC”) brings suit against the Estate
of Benjamin E. King, personally known as Ben E. King, by its administrator Terris Cannon (the
“Estate”), as well as Betty King, Terris Cannon (in his personal capacity), Benjamin E. King, and
Angela Matos (the “King Family”) (collectively, “Defendants”), seeking declaratory and
injunctive relief to enforce two contracts between AREC and the deceased, Ben E. King.
Defendants move to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.
(See Dkt. No. 19.) For the reasons that follow, the motion is granted in part and denied in part.
I.
Background
The following facts, unless otherwise noted, are taken from the complaint (Dkt. No. 1
(“Compl.”)), and are presumed true for the purposes of this motion.
Ben E. King was a renowned musician, best known as the singer and co-writer of “Stand
By Me,” which broke the top ten in the charts in 1961 and 1986 and is considered one of the top
“Songs of the Century.” (Id. ¶ 3.) He also co-wrote “There Goes My Baby.” (Id. ¶ 11.) Both
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“Stand By Me” and “There Goes My Baby” (collectively, the “King Songs”), are the subject of
valid copyrights. (Id.)
On July 31, 2014, King executed a letter, memorializing an agreement with AREC
regarding the prospective sale of the rights to the King Songs (the “Sale Agreement”). (Id. ¶ 12;
Dkt. No. 20-3.) The Sale Agreement provides, in relevant part:
The work we have agreed you will perform for me will include (a) administering,
as more specifically set forth below, my share(s) of the United States copyrights in
the songs referenced above as may be recovered for me by my attorneys and/or (b)
negotiation of the sale of my shares of the United States copyrights in any recovered
songs referenced above as I may determine that I wish to sell.
(Compl. ¶ 13; Dkt. No. 20-3 at 2.) The Sale Agreement further details the terms of AREC’s
contingent fee in exchange for these services (Compl. ¶ 14):
[Y]ou will be entitled to receive ten percent (10%) of the total amount I receive
from the sale of each share of the United States copyright in each recovered song I
co-wrote that you arrange to sell. However, if I, at my sole option, decide to keep
my ownership share of any or all of such recovered songs rather than sell them, you
shall be entitled to receive ten percent (10%) of my ownership share and ten percent
(10%) of all monies I receive as co-publisher of the recovered song or songs . . . .
(Dkt. No. 20-3 at 2.) Finally, the Sale Agreement appointed AREC as King’s attorney-in-fact for
these purposes and stated that if King “want[ed] to conduct an audit” in the future, AREC would
“recommend a royalty auditor for [him] to use,” whom he could accept or reject. (Compl. ¶¶ 1516; Dkt. No. 20-3 at 2-3.)
Shortly after executing the Sale Agreement, on August 1, 2014, and September 3, 2014,
King served termination of transfer notices for the songs “There Goes my Baby” (for which an
amended notice was served on August 22) and “Stand By Me,” respectively (the “Termination
Notices” or “Notices”). (Compl. ¶¶ 22-23; Dkt. No 20-1; Dkt. No. 20-2.) The Notices also
listed parties whose transfer rights would be terminated, including Sony/ATV Tunes, LLC
(“Sony/ATV”). (Dkt. No. 20-1 at 3; Dkt. No. 20-2 at 3.) According to the operative Notices, the
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effective date for the termination of transfer was August 31, 2016, for “There Goes My Baby”
(Dkt. No. 20-1 at 4) and will be April 18, 2017, for “Stand By Me” (Dkt. No. 20-2 at 5).
On December 15, 2014, King and AREC executed a second letter, in which King retained
AREC’s “professional services” to begin an audit of Sony/ATV “regarding royalties previous
paid” for the King Songs (the “Audit Agreement”). (Dkt. No. 20-4 at 2; see Compl. ¶ 17.) The
Audit Agreement provides that AREC “will retain the accounting firm of Prager Metis to
perform the audit and shall advance, at [AREC’s] sole risk, all of the costs of the audit” and
makes clear that AREC will provide the series “on a purely contingent basis after recovery of
[the] recoupable costs; that is [AREC] shall be entitled to receive thirty three and one third
percent (33 1/3%) of the net amount” recovered from Sony/ATV. (Dkt. No. 20-4 at 2.) The
Audit Agreement also states that King was “retaining” several lawyers “in connection with the
matters hereunder.” (Id.)
On January 9, 2015, pursuant to the Audit Agreement, AREC retained Prager Metis to
start an audit of Sony/ATV. (Compl. ¶ 19.) In April 2015, per the terms of the Sale Agreement,
AREC negotiated the sale of “certain rights” in the King Songs to Music Sales Group. (Id. ¶ 18.)
King died on or about April 30, 2015. (Id. ¶ 25.) Six months later, the King Family
retained legal counsel to terminate the Sale Agreement and the Audit Agreement (collectively,
the “Agreements”). (Id.) The King Family’s counsel also notified “third parties with whom
AREC was negotiating” that the Agreements were “not enforceable” and instructed Prager Metis
to “cease communications with AREC.” (Id. ¶¶ 25, 27, 28.) Around November 2015, the King
Family’s lawyers “demand[ed] that the audit be discontinued” and told AREC that the
Agreements were terminated. (Id. ¶ 27.) AREC alleges that the King Family violated AREC’s
grant of rights in the King Songs and ultimately aimed to “create a bidding war for the King
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Songs and then capitalize on AREC’s work . . . for their own financial benefit and gain.” (Id. ¶¶
26, 29.)
On February 12, 2016, AREC filed the instant lawsuit. (See Compl.) AREC seeks a
declaratory judgment that “the Agreements continue in full force and effect.” (Id. ¶ 37.) AREC
further seeks an injunction to prevent Defendants from “dishonoring the contractual obligations”
under the Agreements, making claims to AREC’s interests in the songs, or otherwise denying
AREC’s rights and privileges under the Agreements. (Id. ¶ 45.) Defendants, in turn, moved to
dismiss the action under Federal Rule of Civil Procedure 12(b)(6). (See Dkt. No. 19.)
II.
Legal Standard
To survive a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), “a
complaint must contain sufficient factual matter . . . to state a claim to relief that is plausible on
its face.” Wilson v. Merrill Lynch & Co., 671 F.3d 120, 128 (2d Cir. 2011) (quoting Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009)). “A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id. (quoting Iqbal, 556 U.S. at 678). In determining whether this
standard is satisfied, courts assume that all “factual allegations contained in the complaint” are
true, Bell Atl. Corp. v. Twombly, 550 U.S. 544, 572 (2007), and “draw all inferences in the light
most favorable to the non-moving party[],” In re NYSE Specialists Sec. Litig., 503 F.3d 89, 95 (2d
Cir. 2007) (citation omitted).
III.
Discussion
AREC seeks declaratory and injunctive relief to deem the Agreements valid and to
prevent Defendants from “dishonoring” their terms. (Compl. at 11.) Defendants argue that the
claims should be dismissed as a matter of law because: (1) the Sale Agreement is invalid and
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thus unenforceable; and (2) the Audit Agreement was automatically terminated when King died
or else was validly terminated by Defendants. The Court first analyzes the Sale Agreement, and
then turns to the Audit Agreement.
A.
The Sale Agreement
Defendants suggest that AREC’s claim seeking to deem valid the Sale Agreement fails as
a matter of law because, in direct contravention of the Copyright Act, the Sale Agreement
purports to transfer future copyright interests before the effective date of the corresponding
Termination Notices.
The Copyright Act gives authors the right to terminate the grant of any transfer or license
made prior to 1978, allowing them to recapture the copyright for an extended term. See 17
U.S.C. § 304(c); Marvel Characters, Inc. v. Simon, 310 F.3d 280, 284 (2d Cir. 2002). The
relevant provision also establishes the limitation that any “further grant, or agreement to make a
further grant, of any right covered by a terminated grant is valid only if it is made after the
effective date of the termination.” 17 U.S.C. § 304(c)(6)(D) (emphasis added); see Penguin Grp.
(USA) Inc. v. Steinbeck, 537 F.3d 193, 201-02 (2d. Cir. 2008). The right is both absolute, 17
U.S.C. § 304(c)(5) (“Termination may be effected notwithstanding any agreement to the
contrary, including an agreement . . . to make any future grant.”), and inalienable, see Marvel
Characters, 310 F.2d at 290 (citing Stewart v. Abend, 495 U.S. 207, 230 (1990)) (“[T]he clear
Congressional purpose behind § 304(c) was to prevent authors from waiving their termination
right by contract.”).
Here, the Sale Agreement sets out the terms of King’s retaining AREC to administer
King’s interest in the King Songs and to sell (as King directs) the rights to the King Songs.
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(Compl. ¶ 13; Dkt. No. 20-3 at 2.) 1 See Distribuidora de Discos Karen C. Por A. v. Universal
Music Grp., Inc., No. 13 Civ. 7706, 2015 WL 4041993, at *3 (S.D.N.Y. July 2, 2015)
(explaining that the “right to administer, collect royalties . . . , and assert legal claims and
defenses” constitutes an interest in a copyright). AREC would receive ten percent of the sale
price of recovered copyrights King chose to sell, or ten percent of the ownership of the
copyrights King chose to keep, as well as the right to administer King’s interests together with
ten percent of any revenue King received as a publisher of the songs. (Dkt. No. 20-3 at 2.)
But at the time King executed the Sale Agreement, on July 31, 2014, the Termination
Notices for the King Songs had not yet become effective; indeed they had not even been served.
(See Dkt. No. 20-1; Dkt. No. 20-2.) The termination for “There Goes My Baby” became
effective on August 31, 2016 (Dkt. No. 20-1 at 4), and the termination for “Stand By Me” will be
effective on April 18, 2017 (Dkt. No. 20-2 at 5).
Because the promise of future rights contained in the Sale Agreement predated the
effective dates of the Termination Notices (and predated even the service of the Notices), the
contract contravenes the terms of the Copyright Act and is thus “invalid on its face.” Range Rd.
Music, Inc. v. Music Sales Corp., 76 F. Supp. 2d 375, 380–81 (S.D.N.Y. 1999) (holding that a
transfer of interest “conveyed nothing” because it was executed before the effective date of
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“[T]he Court is entitled to consider facts alleged in the complaint and documents .
. . incorporated in it by reference, [or] documents ‘integral’ to the complaint and relied upon in it
. . . .” Heckman v. Town of Hempstead, 568 F. App’x 41, 43 (2d Cir. 2014). In the complaint,
AREC references the Sale Agreement (Dkt No. 20-3), the Audit Agreement (Dkt. No. 20-4) and
the Termination Notices (Dkt. No. 20-1; Dkt. No. 20-2). (See Compl. ¶¶ 12-17, 22-24.) The
Court is thus free to rely on these documents. See also Chambers v. Time Warner, Inc., 282 F.3d
147, 152 (2d Cir. 2002) (“Even where a document is not incorporated by reference, the court
may nevertheless consider it where the complaint ‘relies heavily upon its terms and effect,’
which renders the document ‘integral’ to the complaint.” (quoting Int’l Audiotext Network, Inc.
v. Am. Tel. & Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995))).
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termination). The Copyright Act’s sole exception—which allows authors to grant or agree to
make a further grant to the “original grantee or such grantee’s successor in title, after the notice
of termination has been served,” 17 U.S.C. § 304(c)(6)(D)—does not apply, as the Termination
Notices had not been served at the time of the Sale Agreement and AREC was not the original
grantee or its successor. (See Dkt. No. 20-1; Dkt. No. 20-2.)
King could not convey or agree to convey a right or interest in the King Songs’
copyrights to any third party at the time he signed the Sale Agreement, 2 so AREC’s claims for a
declaration stating the contract is valid or an injunction requiring Defendants to keep to its terms
must fail as a matter of law.
B.
The Audit Agreement
Defendants also argue that the Audit Agreement automatically terminated upon King’s
death or, alternatively, that Defendants validly terminated it. (See Dkt. No. 19 at 12.) Both of
Defendants’ arguments rely on a finding, as a matter of law, either that the Audit Agreement is a
personal services contract or that it established an agency relationship between King and AREC.
(Id. at 12-13.) The Court thus turns to this threshold question—whether the Audit Agreement is,
as a matter of law, a personal services contract or creates an agency relationship.
The central feature of a personal services contract is that the contract primarily entails the
skill and labor of a particular individual. See, e.g., Steinbeck v. Steinbeck Heritage Found., 400
F. App’x 572, 579 (2d Cir. 2010) (citing Buccini v. Paterno Const. Co., 253 N.Y. 256, 257-58
(1930) (Cardozo, J.)). In determining whether a contract is one for personal services, courts
consider many factors, including: “[t]he importance of trust and confidence in the relation
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The Court need not, and does not, reach Defendants’ argument, in the alternative,
that the Sale Agreement was terminated.
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between the parties, the difficulty of judging the quality of the performance rendered and the
length of time required for performance.” Restatement (Second) of Contracts § 367 cmt. b
(1981). This inquiry can be “intensely fact oriented.” Zink Commc’ns v. Elliott, No. 90 Civ.
4297, 1990 WL 176382, at *17 (S.D.N.Y. Nov. 2, 1990).
Contrary to Defendants’ argument, it is not clear—on the face of the contract or from the
pleadings—whether the Audit Agreement should be characterized as a personal services
contract. It is true that the Audit Agreement has certain features of a personal services contract,
including allusions to the relationship between King and AREC (for instance, it repeatedly
references “I” (King) and “you” (AREC)). (Dkt. No. 20-4 at 2-3.) But the contract describes
various tasks, including “retain[ing] . . . Prager Metis to perform the audit,” “advanc[ing] . . . the
costs of the audit,” and providing separately for legal representation, that do not require the
services of any particular individual. (Id. at 2.) Given this factual complexity, the Court cannot
determine that the contract is one for personal services as a matter of law.
The Court is also unable to conclude, as a matter of law, that the Audit Agreement
establishes an agency relationship between King and AREC. “Agency is the fiduciary relation
which results from the manifestation of consent by one person to another that the other shall act
on his behalf and subject to his control, and consent by the other so to act.” Merrill Lynch Inv.
Managers v. Optibase, Ltd., 337 F.3d 125, 130 (2d Cir. 2003) (quoting Restatement (Second) of
Agency § 1 (1958)). “Not all relationships in which one person provides services to another
satisfy the definition of agency.” Restatement (Third) Of Agency § 1.01 (2006). The question
of whether an agency relationship exists is “a mixed question of law and fact,” Commercial
Union Ins. Co. v. Alitalia Airlines, S.p.A., 347 F.3d 448, 462 (2d Cir. 2003), and the Court is
obligated to “look to the substance of the relationship,” In re Nigeria Charter Flights Contract
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Litig., 520 F. Supp. 2d 447, 461 (E.D.N.Y. 2007) (quoting In the Matter of Shulman Transport.
Enters., Inc., 33 B.R. 383, 385 (S.D.N.Y. 1983)). To that end, it is not evident from the face of
the Audit Agreement that an agency relationship existed between King and AREC. See Phoenix
Cos., Inc. v. Abrahamsen, No. 05 Civ. 4894, 2006 WL 2847812, at *6 (S.D.N.Y. Sept. 28, 2006)
(finding that “express[] authoriz[ation]” to carry out sales, to act as a representative, and to
contract for and compensate advisors are insufficient to establish an agency relationship as a
matter of law). The Court therefore cannot determine at this stage of litigation that, as a matter
of law, an agency relationship was created.
Because the Court does not conclude as a matter of law that the Audit Agreement is a
personal services contract or establishes an agency relationship, Defendants’ arguments that the
Audit Agreement terminated automatically at King’s death or else was validly terminated by
Defendants cannot be sustained. AREC’s claims as to the Audit Agreement therefore survive.
IV.
Conclusion
For the foregoing reasons, the motion to dismiss is GRANTED IN PART, with respect to
the Sale Agreement, and DENIED IN PART, as regards the Audit Agreement. Defendants shall
respond to AREC’s remaining claims on or before January 3, 2017.
The Clerk of Court is directed to close the motion at Docket Number 18.
SO ORDERED.
Dated: December 12, 2016
New York, New York
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J. PAUL OETKEN
United States District Judge
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