HNH Intl., Ltd. v Pryor Cashman Sherman & Flynn LLP

[*1] HNH Intl., Ltd. v Pryor Cashman Sherman & Flynn LLP 2008 NY Slip Op 50589(U) [19 Misc 3d 1107(A)] Decided on March 19, 2008 Supreme Court, New York County Bransten, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 March 19, 2008
Supreme Court, New York County

HNH International, Ltd. and Naxos of America, Inc., Plaintiffs,

against

Pryor Cashman Sherman & Flynn LLP n/k/a Pryor Cashman LLP, et al., Defendants.



150024/06

Eileen Bransten, J.

In this action, plaintiffs seek damages of $2.5 million as a result of defendant Pryor Cashman Sherman & Flynn LLP's ("Pryor Cashman") allegedly negligent legal advice concerning common-law copyright protection. The two-count complaint asserts causes of action for professional malpractice and breach of fiduciary duty. Pryor Cashman now moves to dismiss the action, pursuant to CPLR 3211(a)(1) and (5), based upon documentary evidence and the expiration of the Statute of Limitations.

Background

Plaintiff HNH International, Ltd. ("HNH") is a corporation organized in the People's Republic of China. Plaintiff Naxos of America, Inc. ("Naxos"), HNH's subsidiary, is a New Jersey corporation.

According to the complaint, in May 1999, plaintiffs sought to manufacture and distribute digitally re-mastered "shellac" sound recordings by acclaimed classical music performers that were created between 1928 and 1950. Plaintiff HNH had obtained historical shellac sound recordings by acclaimed classical music performers such as Sergei Rachmaninov, Yehudi Menuhin and Pablo Casals, recorded on media that were no longer accessible to modern listeners, and wanted to be able to use contemporary techniques of digital re-mastering to make high quality compact discs of the sound recordings. Plaintiffs retained Pryor Cashman to provide legal advice on the issue of whether plaintiffs had the legal right to distribute these newly re-mastered recordings in the United States.

In a memorandum dated May 17, 1999 (the "5/17/99 Memo"), Pryor Cashman attorneys informed plaintiffs, in pertinent part, as follows:

Summary of ConclusionsAlthough generally we see no glaring problems with respect to the recordings from 1928 to 1950 that you are presently interested in distributing; as a matter of caution only we raise the following concerns with our conclusions:[*2] 1.There is no copyright protection for sound recordings fixed prior to February 15, 1972.

Goldman Aff., Ex. 2. However, the 5/17/99 Memo goes on to explain this conclusion as follows: 1.Legal Background on Copyright Protection for Sound Recordings Prior to 1972.Pursuant to section 301(c) of the Copyright Act of 1976 "no sound recording fixed before February 15, 1972 shall be subject to copyright." Sound recordings fixed before February 15, 1972 are protectible under state statutory and common law. See [sic] on Copyright, Vol. 1, Sec. 2.13 (1998). Until Congress granted copyright protection to sound recordings in the Sound Recording Amendment of 1971, record manufacturers found relief against record piracy in state misappropriation law. See, e.g., A & M Records, Inc. v. M.V.C. Distrib. Corp., 574 F.2d 312 (6th Cir. 1978). The protection of sound recordings under state laws, where the sound recordings were fixed before February 15, 1972, will remain effective until February 15, 2067. After that date, the state laws will be preempted by federal copyright law. See 301 (c) of the Copyright Act of 1976; Goldstein on Copyright, Vol. III, Sec. 15.14.2.1.

Id. Plaintiffs claim that they relied upon the advice in the 5/17/99 Memo to re-master the recordings, and to manufacture and distribute the compact discs.

Plaintiffs allege that, in an e-mail dated July 15, 1999, Pryor Cashman confirmed that "[t]here is no copyright protection for sound recordings fixed prior to February 15, 1972." Complaint, ¶ 27. The same day, plaintiffs allegedly faxed Pryor Cashman a letter with copies of four compact disc covers, and Pryor Cashman allegedly responded by confirming "that all four sound recordings are fine to release." Id., ¶ 30.

On October 21, 1999, plaintiffs allegedly requested advice on the use of photographs of artists in recordings, where the photographs were taken at the time of the original recording. In a memorandum dated December 6, 1999, Pryor Cashman allegedly concluded that "use of an artist's name, picture, likeness or voice may conflict with the right of privacy laws and also the laws of unfair competition, unjust enrichment, and Lanham Act provisions discussed in our previous memorandum." Id., ¶ 40.

Also on December 6, 1999, Naxos allegedly received a letter from non-party BMG, demanding that Naxos cease and desist from distributing certain sound recordings. Plaintiffs forwarded the letter to Pryor Cashman. The law firm allegedly responded by e-mail two days later, stating that "BMG could possibly have copyright protections in its recordings but such protection would only possibly cover some enhancement or some originality added to the [*3]recording (such as an introduction)," and that Pryor Cashman believed that BMG was "attempting to make a case on right of publicity/privacy or unfair competition." Id., ¶ 38. According to plaintiffs, Pryor Cashman responded to BMG's cease-and-desist letter, rejecting BMG's claims.

Plaintiffs claim that, unbeknownst to them, after receiving BMG's cease-and-desist letter, Pryor Cashman conducted additional legal research and prepared an internal memorandum, dated December 30, 1999, that identified the risk of plaintiffs' infringement on common-law copyright (the "12/30/99 Memo"). The 12/30/99 Memo was prepared on the subject of "common law copyrights protecting sound recordings fixed on or before February 15, 1972, with emphasis on facts analogous to HNH International's scenario, e.g., the enhancement of historical recordings." Jannuzzo Aff., Ex. 3, at 1. The 12/30/99 Memo concluded that "common law copyright protection still exists for historical recordings fixed on or before February 15, 1972" (id. at 2), and that "if BMG were to bring an action under the theory of unfair competition, claiming that HNH had in fact intentionally copied' BMG's sound recordings, HNH could face a permanent injunction preventing it from selling Rachmaninov CD's, compensatory damages and punitive damages" (id. at 7).

Plaintiffs claim that, thereafter, Pryor Cashman prepared another memorandum, dated January 19, 2000, that was addressed to HNH's chief executive (the "1/19/00 Memo"). The 1/19/00 Memo incorporated research contained in the 12/30/99 Memo, and concluded that the cases it summarized "are not favorable for HNH and expose HNH to the possibility of a lawsuit initiated by BMG. Courts will generally protect a plaintiff who can establish valid ownership in a recording fixed prior to 1972, and who can show that the defendant copied the recording." Id., ¶ 54. Plaintiffs do not claim that they were ever sued by BMG, but they claim that neither the 12/30/99 Memo nor the 1/19/00 Memo were ever sent to them, and that the contents of these memoranda was never communicated to them.

In November 2002, Capitol Records, Inc. ("Capitol Records") sued Naxos in the United States District Court for the Southern District of New York for unfair competition, unjust enrichment and common-law copyright infringement, all of which were based upon New York common law (the "Capitol Records Litigation"). Naxos moved to dismiss for failure to state a cause of action, arguing that the recordings had entered the public domain in the United Kingdom (where the performances were recorded) and the United States. Capitol Records moved for partial summary judgment on liability. By this time, the two Pryor Cashman partners who had allegedly advised plaintiffs in 1999 and 2000 had left Pryor Cashman and joined another firm, taking plaintiffs with them as clients.

In a decision dated May 6, 2003, the Southern District granted summary judgment dismissing the claims of Capitol Records. Capitol Records appealed. In a decision dated June 21, 2004, the Second Circuit concluded that "the appeal raise[d] unsettled issues of [New York] state law that are appropriate for certification to the New York Court of Appeals." Capitol Records, Inc. v. Naxos of Amer., Inc., 372 F.3d 471, 474 (2d Cir. 2004). The Court, in a certified question to the Court of Appeals, asked whether there is common-law copyright protection in New York for sound recordings made prior to 1972. This [*4]question subsumed the following three sub-questions: (1) "[d]oes the expiration of the term of a copyright in the country of origin terminate a common law copyright in New York"; (2) "[d]oes a cause of action for common law copyright infringement include some or all of the elements of unfair competition"; and (3) "[i]s a claim of common law copyright infringement defeated by a defendant's showing that the plaintiff's work has slight if any current market and that the defendant's work, although using components of the plaintiff's work, is fairly to be regarded as a new product'?" Id. at 484-85.

By the time the case was heard by the Court of Appeals, one of plaintiffs' attorneys moved to another firm, again taking plaintiffs with him as clients. The Court of Appeals accepted certification, and, in decision dated April 5, 2005, "concluded that the musical recordings here are presumptively entitled to common-law copyright protection in New York ... ." Capitol Records, Inc. v. Naxos of Amer., Inc., 4 NY3d 540, 561 (2005). With respect to the three sub-questions, the Court held that expiration of the term of a foreign copyright does not terminate a copyright under New York common law, that copyright infringement is distinguishable from unfair competition under New York law, and that a "new product" can infringe on a copyright if it utilizes original elements of the protected work. Id. at 561-65.

Plaintiffs claim that, after the Court of Appeals issued its decision, they discharged their attorneys and retained new counsel to negotiate a settlement of Capitol Records' claims. Plaintiffs maintain that they discovered the 12/30/99 and 1/19/00 Memos only after they discharged their attorneys and received their files. Both causes of action asserted by plaintiffs arise out of Pryor Cashman's alleged failure to disclose common copyright infringement issues and seek damages associated with the Capitol Records Litigation.

Analysis

Legal Malpractice

Pryor Cashman argues that plaintiffs' allegations of malpractice must be dismissed, pursuant to CPLR 3211(a)(1), because "undisputed documentary evidence," namely the 5/17/99 Memo, "warned with unmistakable clarity of the risk of state law protections." Defs. Mem. Of Law, at 9. In order for the court to dismiss a complaint pursuant to CPLR 3211(a)(1), the documentary evidence must "conclusively establish[] a defense to the asserted claims as a matter of law." Leon v. Martinez, 84 NY2d 83, 88 (1994). The court is obliged to accept the complaint's factual allegations as true, and accord the plaintiffs the benefit of every possible favorable inference. Weil, Gotshal & Manges, LLP v. Fashion Boutique of Short Hills, Inc., 10 AD3d 267 (1st Dept. 2004).

It is indeed the case that the body of the 5/17/99 Memo advised the client that "[s]ound recordings fixed before February 15, 1972 are protectible under state statutory and common law" and that "[t]he protection of sound recordings under state laws, where the sound recordings were fixed before February 15, 1972, will remain effective until February 15, 2067." Goldman Aff., Ex. 2, at 1-2. However, the "Summary of Conclusions" on the first page does not alert the client to any problems, but rather states that "we see no glaring problems with respect to sound recordings from 1928 to 1950 that you are presently [*5]interested in distributing," and "[t]here is no copyright protection for sound recordings fixed prior to February 15, 1972." Id., at 1. Not only can the argument be made that the 5/17/99 Memo is confusing and uncertain, the complaint alleges that this was just the first of a series of communications whereby Prior Cashman advised its clients that there was "no copyright protection," that it was okay to release the first four compact disc recordings, and that there was no need to pay any royalties for copyright purposes. See Complaint, ¶¶ 26-33. Accordingly, dismissal of the plaintiffs' legal malpractice claim is not warranted based solely on two sentences buried within the body of the 5/17/99 Memo.

Nevertheless, even if the 5/17/99 Memo could be construed as failing to warn plaintiffs about state law protections,

[t]o sustain a cause of action for legal malpractice, a party must show that an attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession. What constitutes ordinary and reasonable skill and knowledge cannot be fixed with precision, but should be measured at the time of representation.

Darby & Darby, P.C. v. VSI Intl., Inc., 95 NY2d 308, 313 (2000) (internal quotation marks and citations omitted) (emphasis added). Here, the issue on which plaintiffs claim to have suffered damages was undetermined under New York law at the time of Pryor Cashman's representation. According to the pleading, plaintiffs' damages were sustained as a result of the Capitol Records Litigation. It was undisputed in that litigation that there was no federal copyright protection, and that the original recordings were recorded in England and had entered the public domain as a result of the expiration of the United Kingdom's statutory copyright protection. As discussed above, the Capitol Records Litigation, and the allegations of the complaint in the instant action, deal only with state law claims.

With respect to the first sub-question subsumed by the certified question in the Capitol Records Litigation, which the Second Circuit opined was "the dispositive issue in this case" (Capitol Records, Inc., 372 F.3d at 484), the Court stated that it "lack[ed] any guidance from the New York courts on the question whether a common law copyright remains available for a work that has entered the public domain in the country of creation" (id. at 481). On the second sub-question, the Second Circuit stated that "[i]n the absence of an authoritative ruling from the New York Court of Appeals, we are in substantial doubt whether New York would import elements of unfair competition into a cause of action for infringement of a common law copyright." Id. at 481. On the third sub-question, the Court stated that, "lacking guidance as to the contours of common law copyright infringement in New York, we cannot be certain whether the District Court's new product' analysis would defeat a claim for common law copyright infringement, at least under the circumstances of this case." Id. at 482.

After a full exposition of the history of English copyright law, federal copyright law, and the scope of common-law copyright protection in New York, the Court of Appeals concluded that the Capitol Records recordings were entitled to common-law copyright protection under New York law. The Court of Appeals then analyzed each of the sub-[*6]questions and concluded, on a novel issue central to plaintiffs' claims, "that New York provides common-law copyright protection to sound recordings not covered by the federal Copyright Act, regardless of the public domain status in the country of origin, if the alleged act of infringement occurred in New York." Capitol Records, Inc., 4 NY3d at 563.

Thus, Pryor Cashman's alleged failure to identify the risk of common-law copyright infringement, which is the basis of the complaint herein, occurred at a time when there was no definitive legal authority in New York providing common-law protection to recordings that had been protected by copyright in their country of origin, but where the duration of copyright protection had expired and the recordings were in the public domain in their country of origin. That determination was not made until April 2005, years after Pryor Cashman represented plaintiffs. As stated by the Court of Appeals, "[t]he perfect vision and wisdom of hindsight is an unreliable test for determining the past existence of legal malpractice." Darby & Darby, P.C., 95 NY2d at 315 (internal quotation marks and citation omitted).

For the foregoing reasons, Pryor Cashman's motion to dismiss plaintiffs' first cause of action for malpractice is granted.

Breach of Fiduciary Duty

Pryor Cashman moves to dismiss the second cause of action for breach of fiduciary duty, arguing that this claim is duplicative of the malpractice cause of action. Plaintiffs counter that this claim is based on Pryor Cashman's purported fraudulent concealment that its previous advice had been incorrect or incomplete. Specifically, plaintiffs allege that Pryor Cashman failed to disclose the 12/30/99 and 1/19/00 Memos, and continued to state that its original advice was valid.

However, "an attorney's failure to disclose malpractice does not give rise to a fraud claim separate from the customary malpractice action." Weiss v. Manfredi, 83 NY2d 974, 977 (1994); see also Simcuski v. Saeli, 44 NY2d 442, 452 (1978) ("concealment by a physician or failure to disclose his own malpractice does not give rise to a cause of action in fraud or deceit separate and different from the customary malpractice action"); Mitschele v. Schultz, 36 AD3d 249, 254 (1st Dept. 2006) ("fraud [was] not simply the failure to disclose the malpractice based upon accounting errors," but rather, was perpetrated "from the time [accountants] were retained to provide accounting services, in failing to disclose their concern with protecting the interests of another entity, namely, plaintiff's employer"); Sonnenschine v. Giacomo, 295 AD2d 287, 288 (1st Dept. 2002) (cause of action for breach of fiduciary duty alleged "the same operative facts as the cause of action for legal malpractice, and, accordingly, [was] properly dismissed for failure to state a cause of action").

The claim for breach of fiduciary duty is based on the same operative facts that formed the basis of the malpractice cause of action. Specifically, both claims are based upon Pryor Cashman's alleged failure to properly identify the risk of common-law copyright infringement, and based upon Pryor Cashman's purportedly affirmative advice that there was no copyright protection. Thus, both claims allege defects in Pryor Cashman's professional [*7]conduct and claim the same injury. Therefore, the claim for breach of fiduciary duty is duplicative of the malpractice claim. Weil, Gotshal & Manges, LLP v. Fashion Boutique of Short Hills, Inc., 10 AD3d at 271.

For the foregoing reasons, Pryor Cashman's motion to dismiss the second cause of action for breach of fiduciary duty is granted.

Since the complaint is dismissed based upon documentary evidence and for failure to state a cause of action, the court need not address Pryor Cashman's additional ground for dismissal which is based on the expiration of the Statute of Limitations or plaintiffs' contention that the continuous treatment doctrine saves the claims.

Accordingly, it is hereby

ORDERED that the motion to dismiss is granted and the complaint is dismissed with costs and disbursements to defendant [FN1] as taxed by the Clerk of the Court; and it is further

ORDERED that the Clerk is directed to enter judgment accordingly.

Dated: March 19, 2008

ENTER:

______________________

Hon. Eileen Bransten Footnotes

Footnote 1:The Summons With Notice originally filed in this action names two other law firms and one individual attorney as defendants. The claims against these other parties have since been discontinued, leaving Pryor Cashman as the sole remaining defendant in the case and the only defendant named in the Complaint. However, the caption was never formally amended and thus any judgment entered in this case must contain the full caption.