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University of South Dakota School of Law

Tuesday, September 9, 2014

Double Dipping at Duke's Place: NY Court of Appeals Oral Argument

640px-Duke_Ellington_-_publicityWe previously blogged about Ellington v. EMI, in which Duke Ellington's grandson essentially claims that EMI is double dipping into foreign royalties because it now owns the foreign subpublishers that are charging fees.  The New York Appellate Division held that Ellington's 1961 royalties agreement is unambiguous and allows EMI to do this.  Ellington has appealed to the New York Court of Appeals and oral argument is scheduled for Thursday.  Oral argument will be streamed live on the Court's website.

Here's the summary of the case from the Court's Public Information Office: 

In 1961, big-band jazz composer and pianist Duke Ellington entered into a then-standard songwriter royalty agreement with a group of music publishers including Mills Music, Inc., a predecessor of EMI Mills Music, Inc. (EMI). The agreement designates Ellington and members of his family as the "First Parties," and it defines the "Second Party" as including the named music publishers and "any other affiliate of Mills Music, Inc."

Regarding royalties for international sales, the agreement requires the Second Party to pay Ellington's family "a sum equal to fifty (50%) percent of the net revenue actually received by the Second Party from ... foreign publication" of his songs. Under such a "net receipts" arrangement, the foreign subpublisher retained 50 percent of the revenue from foreign sales and remitted the remaining 50 percent to EMI. EMI would then pay Ellington's family 50 percent of its net receipts, amounting to 25 percent of all revenue from foreign sales. At the time the agreement was executed, foreign subpublishers were typically not affiliated with American music publishers; but EMI subsequently acquired ownership of foreign subpublishers and, thus, fees that had been charged by independent foreign subpublishers are now charged by subpublishers owned by EMI.

In 2010, Ellington's grandson and heir, Paul Ellington, brought this breach of contract action against EMI, claiming EMI engaged in "double-dipping" by having its foreign subsidiaries retain 50 percent of revenue before splitting the remaining 50 percent with the Ellington family. He alleges this enabled EMI to inflate its share of foreign revenue to 75 percent, and reduce the family's share to 25 percent, in violation of its contractual agreement to pay the family 50 percent "of the net revenue actually received by the Second Party from ... foreign publication."

Supreme Court dismissed the suit, saying the parties "made no distinction in the royalty payment terms based on whether the foreign subpublishers are affiliated or unaffiliated with the United States publisher." The term 'Second Party' does not include EMI's new foreign affiliates, it said, because the definition "includes only those affiliates in existence at the time that the contract was executed."

The Appellate Division, Second Department affirmed, saying there is "no ambiguity in the agreement which, by its terms, requires [EMI] to pay Ellington's heirs 50% 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." It said the definition of 'Second Party' includes only affiliates "that were in existence at the time the agreement was executed," not "foreign subpublishers that had no existence or affiliation with Mills Music at the time of contract."

Paul Ellington argues the agreement was intended to split foreign royalties 50/50 between EMI and his family, while allowing EMI to deduct a reasonable amount for foreign royalty collection costs, and EMI breached the contract by "diverting" half of the revenue to its own foreign subsidiaries. "Per the plain terms of the Agreement..., EMI is 'actually receiv[ing]' all the revenue, and it must, therefore, split it all equally with plaintiff." He argues the definition of Second Party includes affiliates EMI might acquire in the future, since there is no language limiting the term to affiliates then in existence. In any case, he says the language is ambiguous and cannot be resolved on a motion to dismiss.

Here's the Appellate Division decision in Ellington v. EMI.  

https://lawprofessors.typepad.com/contractsprof_blog/2014/09/double-dipping-at-dukes-place-ny-court-of-appeals-oral-argument.html

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