Breach Of Contract Claim Survives In "Daydream Believer" Royalty Suit Concerning Foreign Publishing

Stewart v. Screen Gems-EMI Music, Inc., No. 3:14-cv-04805 (N.D. Cal. filed Mar. 2, 2015) [Doc. 45].

Plaintiff alleges that defendants -- various EMI defendants -- wrongfully withheld publishing royalties to the song "Daydream Believer" written by Plaintiff's late-husband.  The claims arise out of a 1967 songwriter's agreement, which has a "net receipts" (not "at source") arrangement, meaning that the publisher is only obligated to remit to the songwriter a certain percentage of revenue the publisher actually receives after deducting applicable fees and costs.  Plaintiff contended that Defendants were improperly deducting from the song's foreign receipts fees that defendant paid to affiliated foreign sub-publishers that are alter egos of defendant and operate as part of a single enterprise (i.e., defendant was effectively paying itself and then deducting those payments from the receipts to reduce the "net receipts").  Defendants moved to dismissed.  The Court granted the motion to dismiss of defendants EMI and EMI North America for lack of personal jurisdiction; but, found that Plaintiff had stated a claim against defendant Screen Gems-EMI for breach of contract, breach of the implied covenant of good faith and fair dealing, and for an accounting.

Duke Ellington's Foreign Royalties Claim Dismissed Under Plain Language Of 1961 Contract

Ellington v. EMI Music Inc., 651558/2010, NYLJ 1202519466664 (printed Oct. 21, 2011), at *1 (Sup. Ct., N.Y. Co. decided Oct. 2011).

This is action for breach of a songwriter royalty agreement, fraud, and a declaratory judgment. Defendant EMI moved to dismiss the complaint.

Plaintiff Paul M. Ellington, the heir and grandson of the legendary jazz composer and performer Edward Kennedy "Duke" Ellington, sought to recover foreign music publication royalties allegedly owed to him by defendants pursuant to contract dated December 17, 1961 (the 1961 contract). Ellington also sought to commence a class action against defendants on behalf of a putative class consisting of all persons to whom defendants have failed to pay their full contractual share of foreign publication royalties.

Pursuant to the 1961 contract, the First Parties transferred to the Second Party the copyrights to numerous identified musical compositions written by Duke Ellington between 1927 and the contract date, in exchange for, inter alia, payments of cash and royalties, calculated as a percentage of various sources of income, including income generated from sales outside the United States. The 1961 contract superceded a series of similar agreements between Duke Ellington and Mills Music or certain of its affiliates.

There was no real dispute that the 1961 contract is a "net receipts" songwriter royalty agreement. A "net receipts" agreement, common in the music industry prior to the early 1980s, provides for the payment of royalties to the songwriter on a net receipts basis, or, payment based on the net income received by the United States publisher from foreign subpublishers, who retain a percentage of the foreign income as a fee in payment for their services in exploiting and administering publication of the songs outside the United States.

The Court held that the 1961 Contract was clear and unambiguous. ""The royalty payment provision terms demonstrate that the 1961 contract is a net receipts royalty agreement that requires Mills Music, now EMI Mills, to pay Duke Ellington, now Ellington, one half of the 'net revenue actually received by the Second Party' from the 'foreign publication' of the songs falling within the scope of the contract." The Court rejected plaintiff's argument that the 1961 contract was a "at source" agreement, i.e., an agreement for payment of royalties earned worldwide calculated on the amount of income earned in the foreign territories at their source, rather than on the portion of that income received by the United States publisher. In sum, the 1961 contract permited defendants to employ the very method of royalty calculation of which Ellington now complains. Motion to dismiss granted.