Moman v Sony BMG Music Entertainment

[*1] Moman v Sony BMG Music Entertainment 2009 NY Slip Op 50148(U) [22 Misc 3d 1116(A)] Decided on January 20, 2009 Supreme Court, New York County Shulman, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on January 20, 2009
Supreme Court, New York County

Lincoln "Chips" Moman, Plaintiff,

against

Sony BMG Music Entertainment, Defendant.



604392/04



Appearances of Counsel:

Alexander Peltz, Esq.

Peltz & Walker

Attorneys for Plaintiff

212.349.6775

Sandra A. Crawshaw-Sparks, Esq.

Proskauer Rose LLP

Attorneys for Defendant

212.969.3000

Martin Shulman, J.

In this breach of contract action, Lincoln "Chips" Moman ("Moman" or "plaintiff") moves for an order granting leave to amend his complaint. More specifically, he seeks to add an additional cause of action for breach of a third-party beneficiary contract entered into on February 18, 1983 between SONY and Willie Nelson (the "1983 Willie Nelson contract").

Moman, who started his career as a touring session guitarist for many of rock and roll's earliest performing artists, changed his career to that of a writer and song producer in the early 1960's. In 1965, he started American Song Studios which produced tracks for, among others, The Box Tops, Sandy Posey and Joe Tex. He wrote songs for Wilson Picket and Aretha Franklin. He also wrote songs and produced albums for Elvis Presley and Neil Diamond. He eventually entered into various producer contracts with the predecessors-in-interest of defendant SONY BMG Music Entertainment (hereinafter, "SONY") on behalf of some SONY artists, including Tammy Wynette, Merle Haggard, Dottie West, Cymarron, Johnny Cash, Gary Ronnie Stewart, Waylon Jennings and Willie Nelson.

The original complaint was served on or about September 22, 2006 and addresses other substantive contractual issues totally separate from the 1983 Willie Nelson contract, which is the subject of the seventh cause of action in the proposed amended complaint. Under the various [*2]disputed producer contracts in the original complaint, Moman alleges that SONY's predecessors-in-interest agreed to pay Moman royalties for: (1) direct manufacture of products containing the master recordings of the artists which Moman produced; and (2) licensing of such artists' master recordings to third parties, i.e., other record, television and film companies.

Subsequent to the commencement of this action, and prior to the submission of this motion to amend, the parties met to discuss settlement of the main action, which included the exchange of documentation in an attempt to reach a resolution of all issues. No settlement was reached. One of the documents, which allegedly surfaced for the first time during the settlement discussion, was the 1983 Willie Nelson contract which, in essence, provides that Moman would receive a $225,000.00 advance royalty payment on his services for CBS Records (hereinafter, "CBSR") for producing a single Willie Nelson album with Waylon Jennings, entitled "Take it to the Limit." The 1983 Willie Nelson contract, on its face, appears to be a written request in letter format from Willie Nelson to CBSR. The court notes that only Willie Nelson and a representative from Abbot Ltd. ("Abbot") had placed their signatures on the alleged 1983 Willie Nelson contract.

In paragraphs 21 and 22 of its opposition papers, SONY refers to section 3 of the 1983 Willie Nelson contract as being a so-called "Letter of Direction" (hereinafter the "1983 LOD") "from Willie Nelson and his company ("Abbott Ltd.") to CBS . . ." The 1983 LOD requested CBSR to pay a $225,000.00 advance royalty payment to Moman on behalf of Nelson and Abbot. Plaintiff refers to the $225,000.00 advance royalty payment as being an "open mutual account."

Both Moman and SONY quote from section 3 of the 1983 LOD in support of their contrary positions on Moman's status as an intended third-party beneficiary. Section 3 provides: Your [CBSR's] compliance with this authorization will constitute an accommodation to me [Willie Nelson] alone; the Producer [Moman] is not a beneficiary of it. All payments to the Producer under this authorization will constitute payment to me and you [CBSR] will have no liability by reason of any erroneous payment or failure to comply with this authorization. I [Willie Nelson] will indemnify and hold you harmless against any claims asserted against you [CBSR] and any damages, losses or expenses you incur by reason of any such payment or otherwise in connection herewith. (Bracketed matter added).

In discerning whether Moman may be an intended third-party beneficiary, or the alleged $225,000.00 advance royalty payment is an "open mutual account" (see discussion infra), section 3 must be looked at in context with other sections of the 1983 LOD. Other pertinent sections are sections 1, 2, 2 (a), 2 (b) (1), 2 (b) (2) and 4. These sections, quoted in their entirety, are as follows: (1) I [Willie Nelson] have engaged Lincoln W. Moman p/k/a "Chips" Moman (the "Producer") to produce recordings constituting one (1) album (the "Recordings") to be made pursuant to the agreement between you [CBSR] and me dated January 15, 1980 (CRU-565.1(2)), as amended (the "Agreement"). Specifically, the Recordings will embody my performances together with the performances of Waylon Jennings pursuant to the modification of the Agreement dated October 7, 1982 (CRU 82-529(2)) (the "Modification"). (Bracketed matter [*3]added).(2) Although the Agreement requires me to pay for the services of the Producer, I hereby request and irrevocably authorize you to make payments for his services on my behalf as follows:

(a) An advance of $225,000 upon the delivery to you of all the Recordings in accordance with the Agreement together with all necessary licenses and applicable approvals and consents. This advance will be recoupable by you from all monies becoming payable to the Producer (or for his services under paragraph 2 (b) below or otherwise). To the extent not so recouped, the advances may be recouped by you from any monies payable to me, but all amounts so recouped from monies payable to me will be credited to my royalty account if subsequently recouped from monies payable to the Producer. Each such advance will also be applied against the recording budget applicable to the Recordings under the Agreement.

(b) (1) A royalty (the "Producing Royalty") on net sales of phonograph records derived from the Recordings, computed and paid in the same manner as the royalty payable to me under the Agreement, at the same times, and subject to the same conditions, but at a basic rate of seven percent (7%) instead of the rate fixed in subparagraph 6(a) of the Modification, with proportionate reductions on all sales for which the reduced royalties are payable under the Agreement. The amount of the Producing Royalty will be deducted from all monies payable or becoming payable to me under the Agreement.

(2) The Producing Royalty will not be payable until you have recouped the advance in paragraph 2(a) herein. If any amounts of the Producing Royalty are paid by you to the Producer or on his behalf at a time when my royalty account is "unearned" (as defined in the next sentence), such amounts may be applied to you to reduce all monies payable to me or on my behalf thereafter. "Unearned," as used in the preceding sentence, means that the sum of all advances, loans and other offsets against my royalties exceeds the amount of royalties credited to my account.

*** 4. All monies becoming payable under this authorization will be remitted to the Producer at the following address or otherwise as he directs you in writing:

"Chips" Moman

c/o Robert Thompson, Esq.

10 Music Circle East

Nashville, Tennessee 37203

[emphases added].

Sections 1, 2, 2 (a) and 2 (b) (1) refer to other related contractual matters identified as an [*4]Agreement and a Modification. The Agreement and the Modification have some significant bearing on the creation of the 1983 $225,000.00 LOD advance royalty payment, and the recoupment of that payment from Moman's "Take it to the Limit" royalties. SONY's position that Moman is not a third-party beneficiary of the $225,000.00 advance royalty payment because of the 1983 LOD phrase in section 3 that "the Producer is not the beneficiary of it" makes no sense if one looks at the 1983 LOD in its entirety, i.e., with the Agreement and Modification.

Moman cites to Mendel v Henry Phipps Plaza W., Inc. (6 NY3d 783, 786 [2006]) and Alicea v City of New York (145 AD2d 315, 317 [1st Dept 1988]) in support of his position that he is a third-party beneficiary of the 1983 LOD. Mendel, like Alicea, addresses the elements needed to establish a third-party relationship. Alicea provides that, even though the beneficiary may be the beneficiary of a public or a private contract, he can recover "`only by establishing (1) the existence of a valid and binding contract between other parties, (2) that the contract was intended for his benefit and (3) that the benefit to him is sufficiently immediate, rather than incidental, to indicate the assumption by the contracting parties of a duty to compensate him if the benefit is lost' [citation omitted]" (id.). The Alicea Court went on to say that an intended beneficiary is one whose "right to performance is appropriate to effectuate the intention of the parties' to the contract and either the performance will satisfy a money debt obligation of the promisee to the beneficiary or the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance' (Restatement [Second] of Contracts § 302 [1] [a], [b])"

(id. at 317-318). The Alicea Court concluded, [t]hus, where the performance is rendered directly to a third party, that party is generally considered an intended beneficiary of the contract [citation omitted]. The best evidence, however, of whether the contracting parties intended a benefit to accrue to a third party can be ascertained from the contract itself [citation omitted]. An intent to benefit a third party can also be found when "no one other than the third party can recover if the promisor breaches the contract ... or ... the language of the contract otherwise clearly evidences an intent to permit enforcement by the third party" [citation omitted]

(id. at 318). Adopting the Alicea rationale and considering the facts as presented, this court finds that the language of the 1983 LOD appears to have anticipated the potential legal enforcement of the 1983 LOD by a third party, i.e., Moman. Indeed, Moman is now suing 25 years later (well beyond the six-year statute of limitations) because he claims that neither he, nor his former now-deceased attorney, ever received a $225,000.00 advance royalty payment from CBSR. In addition to his claim that he never received the 1983 advance royalty payment, Moman further alleges that SONY is improperly recouping on the 1983 LOD. SONY admits to an ongoing withholding of royalty payments for that purpose.

In considering if there is any merit to Moman's motion to amend, two primary questions arise. The first asks whether Moman ever actually received the 1983 $225,000.00 advance [*5]royalty payment. The second asks, if he did, how much in royalties has been generated from the "Take it to the Limit" recording production since 1983. Section 2 in the 1983 LOD, more specifically 2(a), 2(b)(1) and 2(b)(2), seems to address the nature, source and movement of royalties stemming from the "Take it to the Limit" production. In this motion to amend, Moman alleges that SONY has erroneously withheld portions of Moman's royalty earnings at least 12 times in the last six years towards recoupment of the alleged 1983 advance royalty payment. He seeks return of those royalty payments and a cessation of SONY's recoupment activity (see reply memorandum of law, at 5). SONY does not rebut this allegation of its retention of royalties, and instead states that the alleged 1983 LOD advance royalty payment has still not been recouped (see September 9, 2008 Rappaport Opp. Aff at ¶11; SONY memorandum of law, at pp. 5 and 16).

Moman argues that the alleged 1983 $225,000.00 advance royalty payment is an "open mutual account," i.e., that it is currently active, and that SONY "continues to apply plaintiff's royalty earnings against the alleged $225,000.00 advance" (see Moman memorandum of law, at pp. 3 and 7). SONY counter-argues that the 1983 $225,000.00 advance royalty payment is not an "open mutual account" and raises a statute of limitations argument regarding these royalty payments. CPLR 213 (2) sets the statute of limitations for a breach of contract at six years. The six-year statute of limitations runs from when the contract is first breached (Superb Gen. Contracting Co. v City of New York, 39 AD3d 204 [1st Dept 2007]). If an open mutual account related to the 1983 LOD advance royalty payment exists, as Moman argues, and is still active and not fully recouped, as SONY states (see Rappaport Opp. Aff. at ¶11; SONY memorandum of law, at pp. 5 and 16), SONY would be entitled to continue to recoup the 1983 advance royalty payment.

A mutual, open and current account exists where two parties establish a relationship in which each extends credit to the other with the understanding, express or implied, that the account upon one side shall offset that upon the other, and that, ultimately, there shall be a settlement of the balance (1 Weinstein-Korn-Miller, NY Civ Prac ¶ 206.06 at 2-201 [2nd ed]). Whether an account is mutual, open and current depends upon the intention of the parties and not upon the method of bookkeeping employed by either party (id.; Rodgers v Roulette Records, Inc., 677 F Supp 731, 735 [SD NY 1988]; In re Meyrowitz' Estate, 114 NYS2d 541 [Sur Ct, NY County 1952], affd without opinion 284 App Div 801 [1st Dept 1954]). An account which has only credits and no offsetting debits is, in effect, not a mutual account (Rodgers v Roulette Records, Inc., 677 F Supp at 736).

SONY has provided very limited and sketchy documentation regarding such business records (see Rappoport affirmation in opposition, Exhibits A and B). Moman attests in his affidavit that, other than the exhibits provided by SONY, he has no such records to substantiate SONY's claim that Moman was paid $225,000.00 in accordance with the 1983 LOD. Nor, to the court's knowledge, has SONY provided such records establishing the amount of "Take it to the Limit" royalties deducted over the last six to seven years. This court finds that, regardless of whether or not an open mutual account related to the 1983 LOD advance royalty payment still exists, or existed, a basis exists for the return of certain "Take it to the Limit" royalties alleged to have been improperly withheld over the last six to seven years. If an advance royalty payment was paid out to, and received by, Moman or his former attorney, and as SONY claims it has not [*6]yet recouped the full amount advanced, then common sense implies that, since 1983, accounting records should have been compiled on an ongoing basis in the ordinary course of business. If no 1983 advance royalty payment was paid to Moman, then pertinent records should still show all royalty payments that were made to Moman or Willie Nelson from the "Take it to the Limit" production. These records could establish what amount, if any, remains to be paid on the 1983 LOD advance royalty payment or what amount, if any, was improperly withheld by SONY.

In its opposition papers, SONY makes reference to a lawsuit filed with the federal court in Georgia, entitled Chips Moman Production, Inc. v CBS Records, Inc. and Willie Nelson, Individually and Abbot Ltd. (US Dist Ct, ND Georgia, 1:990 cv 1640, Freeman, J. 1990) which resulted in a September 7, 1990 consent judgment with an attached settlement (see September 9, 2008 Rappaport affirmation, Exhibit C). SONY states, in paragraph 17 of its opposition papers, that in 1990, "Moman was permitted to audit the books and records of [CBSR] that reported the sale of phonograph records by [CBSR] for which royalties were allegedly payable to Moman for the six month periods ending June 30, 1987 through June 30, 1990. EX C at A- 4." Paragraph 18 makes reference to a 90-day limited right to audit the CBSR books and records in the settlement portion of the 1990 Georgia action. SONY infers that the 90-day audit referred to in the settlement would also have included a review for royalties related to the "Take it to the Limit" production. Such an inference is misplaced. Moman correctly points out that the 1990 Georgia action was limited to very narrow litigation involving the return, to CBSR at its Nashville office, of the original of a certain long-form video in the possession of Moman, entitled the "Highwayman." That returned video embodied performances by Johnny Cash, Waylon Jennings, Kris Kristofferson and Willie Nelson. The settlement attached to the 1990 judgment specifically provided that, upon Moman's return of the video to CBSR, CBSR would pay Moman a royalty on net sales of the Highwayman video along with a $20,000.00 advance royalty payment. There is no mention of the "Take it to the Limit" production in the 1990 consent judgment.

This court finds that the 90-day audit of the CBSR books and records would have been limited to a search related to royalty payments arising from sales of the "Highwayman" video. As such, any res judicata or collateral estoppel arguments (see Kaufman v Eli Lilly & Co., 65 NY2d 449, 455 [1985]) would have been limited to the 90-day audit regarding only the "Highwayman" royalties for the asserted six-month time period referenced in Exhibit C, supra (compare Weinstein Enters., Inc. v Orloff, 30 AD3d 354 [1st Dept 2006]; Prudential Lines, Inc. v Firemen's Ins. Co. of Newark, N.J., 91 AD2d 1, 3-4 [1st Dept 1982]), but not a review of royalties related to the 1983 production of "Take it to the Limit." This court rejects SONY's suggestion that the breadth of the 1990 judgment audit of the CBSR books and records would also have encompassed royalties from the 1983 LOD.

The court reiterates that Moman claims in his reply affidavit that, until April 2007, when his current counsel and business manager received a copy from SONY, he was not aware of the 1983 LOD. Moman further states that a search of his records resulted in no proof that such an advance royalty payment was ever made out to or received by him. He states that his attorney at the time of the alleged payment is deceased and therefore unavailable for insight as to SONY's claim that a payment was sent to and received by Moman.

In turn, SONY itself is unable to comply with Moman's request for it to provide a copy of [*7]the canceled check related to the alleged 1983 LOD advance royalty payment. SONY asserts that it is unable to provide a copy of the cancelled check because it is a successor-in-interest to the entity that allegedly made the $225,000.00 payment over 25 years ago, and SONY, itself, has undergone dramatic structural and management changes causing many of the records to not be "fully accessible." SONY has provided Moman with a copy of the "CBS Records" royalty report attached as Exhibit A to SONY's opposition papers. That document listed a line item indicating an advance payment of $225,000.00.[FN1] Both SONY and Moman indicate that persons who might have knowledge about the 1983 LOD payment are deceased, no longer employed or not known.

CPLR 3025 (b) allows for the amendment of a pleading where appropriate and in the absence of any prejudice to the opposing party. It is well settled that leave to amend a pleading shall be freely granted absent prejudice or surprise caused by a delay (see Antwerpse Diamantbank N.V. v Nissel, 27 AD3d 207, 208 [1st Dept 2006]). The court reiterates that both parties participated in the settlement discussions and it was SONY who presented the copy of the 1983 Willie Nelson contract to Moman.

While an examination of the underlying merits is warranted before the granting of a motion to amend (Spitzer v Schussel, 48 AD3d 233 [1st Dept 2008]), "[i]n the absence of prejudice or surprise resulting directly from the delay in seeking leave, such applications are to be freely granted unless the proposed amendment is palpably insufficient or patently devoid of merit" (Lucido v Mancuso, 49 AD3d 220, 222 [2nd Dept 2008]). In consideration of the parties' conflicting and unclear statements regarding payment and recoupment of royalties in light of SONY's statute of limitations argument regarding the 1983 LOD (compare Schulte Roth & Zabel, LLP v Kassover, 28 AD3d 404, 404 [1st Dept 2006]; Brunetti v Musallam, 19 Misc 3d 1115[A], 2008 NY Slip Op 50721[U] [Sup Ct, NY County 2008]), further research of the coding references in the June 30, 1983 CBS Records royalty report (see footnote 1, supra ), along with the location and compilation of additional business accounting records, is needed to assist in a resolution of the allegations in the amended complaint's seventh cause of action (compare Am. Theater for Performing Arts, Inc. v Consol. Credit Corp., 45 AD3d 506 [1st Dept 2007]). At this juncture, there is a showing of merit to the proposed amended pleading (id.).

Accordingly, based on the aforesaid facts and law, it is

ORDERED that the plaintiff's motion for leave to amend the complaint herein is granted, and the amended complaint in the proposed form annexed to the moving papers shall be deemed served upon service of a copy of this decision and order with notice of entry thereof; and it is further

ORDERED that the defendant shall serve an answer to the amended complaint within 20 days from the date of said service.

Counsel for the parties are directed to appear for a preliminary conference on February 17, 2009 at 9:30 a.m. at I.A.S. Part 1, 111 Centre Street, Room 1127B, New York, New York.

The foregoing constitutes this court's Decision and Order. A copy of this [*8]Decision and Order has been sent to counsel for the parties.

Dated: January 20, 2009

______________________

Martin Shulman, J.S.C. Footnotes

Footnote 1: The document also lists "Moman Nelson Jenning" as the artist, 06/30/83 as the date and 44221102 as the code. Under current advances, it lists the voucher number as R2201, the project number as 050018, and the description as "artist payment."