Publisher Not Double Dipping Foreign Royalties Under Terms Of 1961 Agreement With Duke Ellington

Ellington v. EMI Music et al., 2014 NY Slip Op 07197, NYLJ 1202674400667 (N.Y. Court of Appeals Oct. 23, 2014).

New York's highest court affirmed dismissal of a breach of contract claim brought by Duke Ellington's heir, against Ellington's publisher (EMI), seeking unpaid royalties under a 1961 agreement.  The majority of the Court of Appeals held that, under the contract's clear and unambiguous terms, Ellington was entitled to 50% "net receipts" from foreign publishers, even if those foreign publishers were now-affiliated with the US publisher.

Plaintiff had claimed that by using affiliated foreign subpublishers, EMI was double-dipping into the entire pot of revenue generated from the foreign sale of the relevant musical compositions.  Essentially, plaintiff claimed that the amount retained by the affiliated foreign subpublishers prior to remittal of the remainder to EMI was an amount received by EMI, and therefore, when using affiliated foreign subpublishers, EMI should remit to the First Parties half of the entire amount generated from the foreign sale of the relevant musical compositions.  The trial court disagreed and dismissed the complaint; the appellate division affirmed; and the Court of Appeals affirmed.

First, as to "net revenue actually received," the Court of Appeals found that the royalty provision makes no distinction between affiliated and unaffiliated foreign subpublishers.  Therefore,  the courts below properly declined to read such a distinction into the contract as it does not appear to have been the intent of the parties that such a distinction be included, primarily because they were understandably unaware that such a change in the industry would occur.

Second, as to "any other affiliate," the Court of Appeals found that "[a]bsent explicit language demonstrating the parties' intent to bind future affiliates of the contracting parties, the term 'affiliate' includes only those affiliates in existence at the time that the contract was executed."  In other words, the publisher was not double dipping because its later-foreign-affiliates were not "affiliates" of the publisher under the contract.

There were two dissents.  In sum, the dissents found it "wrong... that, when a contract is written to bind 'any . . . affiliate' of a party, its effect should be limited to affiliates in existence at the time of contracting."  In other words, the dissent would have held that the term "affiliate" as used in the Agreement may be interpreted as appellant suggests to include EMI's foreign affiliated entities.

Dismissal of Duke Ellington Royalty Suit Affirmed

Ellington v. EMI Music, No. 651558/10, NYLJ 1202598616249 (1st Dep't May 2, 2013)

The First Department affirmed dismissal of Duke Ellington heirs' breach of contract action against a group of music publishers.  The dispute was based on a 1961 songwriter agreement, and called for an interpretation of paragraph 3(a) of the agreement which, where relevant, required payment to Ellington of "a sum equal to fifty (50 percent) percent of the net revenue actually received by the Second Party from…foreign publication" of Ellington's compositions.  This is known in the music publishing industry as a "net receipts" arrangement by which a composer, such as Ellington, would collect royalties based on income received by a publisher after the deduction of fees charged by foreign subpublishers.

Fees that previously had been charged by independent foreign subpublishers under the instant net receipts agreement were now being charged by subpublishers owned by Defendant.  Plaintiff asserted that Defendant had enabled itself to skim his claimed share of royalties from the Duke Ellington compositions by paying commissions to its affiliated foreign subpublishers before remitting the bargained-for royalty payments to Duke Ellington's heirs.  In dismissing the complaint, the motion court declined to read into the royalty payment terms any distinction between affiliated and unaffiliated foreign subpublishers inasmuch as the contracting parties themselves chose not to make such a distinction.  The First Department affirmed.

The Court found no ambiguity in the agreement which, by its terms, required EMI to pay Ellington's heirs 50 percent of the net revenue actually received from foreign publication of Ellington's compositions. "'Foreign publication' has one unmistakable meaning regardless of whether it is performed by independent or affiliated subpublishers. Given the plain meaning of the agreement's language, plaintiff's argument that foreign subpublishers were generally unaffiliated in 1961, when the agreement was executed, is immaterial."

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.