Copyright Dispute: Bright Tunes vs. George Harrison - A Fiduciary Breach?, Study Guides, Projects, Research of Law

Download Copyright Dispute: Bright Tunes vs. George Harrison - A Fiduciary Breach? and more Study Guides, Projects, Research Law in PDF only on Docsity! ABKCO MUSIC, INC., Plaintiff-Appellant-Cross-Appellee, v. HARRISONGS MUSIC, LTD., HARRISONGS MUSIC, INC., GEORGE HARRISON, APPLE RECORDS, INC., BROADCAST MUSIC, INC., and HANSEN PUBLICATIONS, INC., Defendants-Appellees-Cross-Appellants, v. ABKCO INDUSTRIES, INC. and ALLEN KLEIN, Additional Parties with Respect to Counterclaims-Appellants-Cross- Appellees Nos. 82-7421, 82-7461, Nos. 505, 600 -- August Term, 1982 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT 722 F.2d 988; 1983 U.S. App. LEXIS 15562; 221 U.S.P.Q. (BNA) 490; Copy. L. Rep. (CCH) P25,603 November 24, 1982, Argued November 3, 1983 PRIOR HISTORY: [**1] Appeal from a judgment which imposed a constructive trust in favor of appellees-cross- appellants on ABKCO Music, Inc.'s acquisition of the rights to a musical composition. Cross-appeal from that portion of the judgment which found appellees-cross-appellants liable for copyright infringement. DISPOSITION: Affirmed in part, modified and remanded in part. COUNSEL: Gideon Cashman, New York, New York, (Pryor, Cashman, Sherman & Flynn, New York, New York, James A. Janowitz, Donald S. Zakarin), for Plaintiff- Appellant-Cross-Appellee. Joseph J. Santora, New York, New York, (Santora Shenkman & Kushel, New York, New York, Robert B. McKay), for Defendants-Appellees-Cross-Appellants. Cleary Gottlieb, Steen & Hamilton, New York, New York, (Richard W. Hulbert, Albert S. Pergam), for Apple Records, Inc. JUDGES: Pierce, Winter and Pratt, Circuit Judges. OPINIONBY: PIERCE OPINION: [*990] PIERCE, Circuit Judge: I. BACKGROUND A. Events Leading to Liability Trial On February 10, 1971, Bright Tunes Music Corporation (Bright Tunes), then copyright holder of the song "He's So Fine," composed by Ronald Mack, brought this copyright infringement action in the United States District Court for the [**2] Southern District of New York against former member of the musical group "The Beatles" George Harrison, and also against related entities (hereinafter referred to collectively as "Harrison Interests"), n1 alleging that the Harrison composition, "My Sweet Lord," (hereinafter referred to alternatively as "MSL") infringed the Ronald Mack composition, "He's So Fine," (hereinafter referred to alternatively as "HSF"). n2 - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n1 Suit was brought against Harrisongs Music, Ltd. (Harrison's English company), Harrisongs Music, Inc. (Harrison's American company), Apple Records, Inc. [hereinafter referred to collectively as Harrison Interests], as well as Broadcast Music, Inc. and Hansen Publications, Inc. n2 In 1973, a similar infringement action was brought in England by The Peter Maurice Music Co., Ltd. (Maurice), which in 1963, had received from Bright Tunes an assignment of all copyright rights for HSF worldwide (except the United States and Canada). - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - When this action was commenced, the business affairs of The Beatles, [**3] including Harrison Interests, were handled by ABKCO Music, Inc. (ABKCO) and Allen B. Klein, its President and "moving spirit." ABKCO Music, Inc. v. Harrisongs Music, Ltd., 508 F. Supp. 798, 799 (S.D.N.Y.1981). n3 ABKCO was Harrison's business manager during the initial stages of the copyright liability action herein, at which time the litigation was handled for Harrison by ABKCO's General Counsel. - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n3 References to "ABKCO" or to "Klein" are to include ABKCO Music, Inc., its parent ABKCO Industries, Inc., and Allen B. Klein. - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - The following events preceded the instant appeal. Shortly after this action was commenced in February, 1971, Klein (representing Harrisongs Music, Inc. and George Harrison) met with Seymour Barash (President and major stockholder of Bright Tunes) to discuss possible settlement of this lawsuit. n4 Although Klein, at trial, denied having specific knowledge of the details of this discussion, he testified that he had suggested to Barash, around February of 1971, a purchase of [**4] the entire stock of Bright Tunes as a way to dispose of this lawsuit. Thus, in 1971, Klein was acting on behalf of Harrison Interests in an effort to settle this copyright infringement claim brought by B. Liability Trial and Events Thereafter A three-day bench trial on liability was held before Judge Owen on February 23-25, 1976. On August 31, 1976 (amended September 1, 1976), the district judge rendered a decision for the plaintiff as to liability, based on his finding that "My Sweet Lord" was substantially similar to "He's So Fine" and that Harrison had had access to the latter. Bright Tunes Music Corp. v. Harrisongs Music, Ltd., 420 F. Supp. 177 (S.D.N.Y. 1976). The issue of damages and other relief was scheduled for trial at a later date. Following the liability trial, Klein, still acting for ABKCO, continued to discuss with Bright Tunes the purchase of the rights to HSF. During 1977, no serious settlement discussions were held between Bright Tunes and Harrison Interests. Indeed, the record indicates that throughout 1977 Bright Tunes [**10] did not authorize its attorneys to give Harrison a specific settlement figure. By November 30, 1977, Bright Tunes' counsel noted that Klein had made an offer on behalf of ABKCO that "far exceeds any proposal that has been made by the defendants." n6 - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n6 In a letter dated November 30, 1977 from Bright Tunes' counsel to the attorney for the estate of composer Ronald Mack, Tenenbaum and Sheldon, Klein's offer was set forth in detail: acquisition of the rights to HSF, including Bright Tunes' damages claim against Harrison Interests herein, in exchange for (1) payment of $150,000 to the estate of Ronald Mack (ten-year annuity of $15,000 per year); (2) payment to Bright Tunes' Receiver of either (a) $350,000 plus $50,000 for payment of legal fees incurred by Bright Tunes thus far, or (b) payment of $350,000 and agreement to turn over to Bright Tunes' Receiver or stockholders such legal fees and interest as may be awarded by the court at the conclusion of the action. Klein would agree that if the action were settled prior to an award, he would pay an additional $100,000 in lieu of court awarded interest and attorneys fees. In July 1977, the English infringement action between The Peter Maurice Music Company and Harrison was settled. Pursuant to that settlement, Harrisongs, Ltd. was to pay Maurice 40% of the past and future monies received through exploitation of the MSL copyright in the United Kingdom, and the parties were to use "their best endeavours" to secure similar settlements throughout the remainder of the Maurice territory (i.e., foreign claims other than those arising in the United States and Canada). The agreement was embodied in an order of the High Court of Justice on June 30, 1977. This settlement was strongly opposed by Bright Tunes. - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - [**11] On February 8, 1978, another settlement meeting took place, but no agreement was reached at that meeting. Although it appears that everyone present felt that the case should be settled, it also appears that there were no further settlement discussions between Harrison Interests and Bright Tunes subsequent to that date. The Bright tunes negotiations with ABKCO, however, culminated on April 13, 1978, in a purchase of ABKCO of the HSF copyright, the United States infringement claim herein, and the worldwide rights to HSF, for $587,000, an amount more than twice the original Klein (ABKCO) offer. This purchase was made known to George Harrison by Klein himself in April or May of 1978. Harrison "was a bit amazed to find out" about the purchase. n7 - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n7 Some time after the April 1978 purchase of HSF by ABKCO, ABKCO contends that it offered to sell to Harrison Interests what it had purchased, for a price of $700,000 ($113,000 over ABKCO's purchase price from Bright Tunes). It is unclear, however, whether this offer was for the totality of what Klein had bought from Bright Tunes. In any event, this offer was not accepted. - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - [**12] [*993] C. Damages Proceedings and Foreign Settlements On July 17, 1978, ABKCO adopted Bright Tunes' complaint and was substituted as the sole party plaintiff in this action. In May 1979, Harrison Interests obtained leave to assert affirmative defenses and counterclaims against Klein and ABKCO for alleged breaches of fiduciary duty relating to the negotiation for and purchase of the Bright Tunes properties. n8 An eight-day bench trial was held on damages and counterclaims between August 27 and October 15, 1979. - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n8 Specifically, Harrison Interests alleges that the following conduct by Klein and ABKCO constituted such breaches of duty: (1) clandestine interference with Harrison Interests' settlement efforts; (2) covert furnishing of MSL financial data to Bright Tunes in connection with ABKCO's own efforts to obtain the HSF copyright; (3) covert furnishing to Bright Tunes of Klein's personal estimates of MSL financial expectations; (4) sideswitching in the present litigation; (5) use of information acquired as a fiduciary in prosecuting this action after the purchase of HSF; and (6) use of confidential information to compete with Harrison Interests and wrongful appropriation of an opportunity rightfully belonging to Harrison Interests. - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - [**13] While the matter was still sub judice, Harrison Interests, on April 3, 1980, entered into an agreement with Essex Music International, Ltd. (Essex), authorizing Essex to negotiate and enter into settlement agreements, on a 60%/40% basis, on behalf of Harrison Interests throughout the world (except the United Kingdom, the United States and Canada) with any party owning an interest in HSF. These terms were consistent with those of the Maurice-Harrison settlement of the United Kingdom claim, whereby the parties were to use "best endeavours" to obtain 60%/40% settlements throughout the world. n9 ABKCO then settled foreign claims with Essex, also on April 3, 1980. - - - - - - - - - - - - - - - - - -Footnotes- - - - - - - - - - - - - - - - - - n9 See supra note 6. - - - - - - - - - - - - - - - - -End Footnotes- - - - - - - - - - - - - - - - - The damages decision was filed on February 19, 1981. ABKCO Music, Inc. v. Harrisongs Music, Ltd., 508 F. Supp. 798 (S.D.N.Y.1981). Having determined that the damages amounted to $ 1,599,987, the district judge held that ABKCO's conduct over the 1975-78 period limited its recovery, substantially because [**14] of the manner in which ABKCO had become a plaintiff in this case. Particularly "troublesome" to the court was "Klein's covert intrusion into the settlement negotiation picture in late 1975 and early 1976 immediately preceding the trial on the merits." Id. at 802. He found, inter alia, that Klein's status as Harrison's former business manager gave special credence to ABKCO's offers to Bright Tunes and made Bright Tunes less willing to settle with Harrison Interests either before or after the liability trial. Moreover, the court found that in the course of negotiating with Bright Tunes in 1975-76, Klein "covertly furnished" Bright Tunes with certain financial information about MSL which he obtained while in Harrison's employ as business manager. The foregoing conduct, in the court's view, amounted to a breach of ABKCO's fiduciary duty to Harrison. The court held that although it was not clear that "but for" ABKCO's conduct Harrison Interests and Bright Tunes would have settled, he found that good faith negotiations had been in progress between the parties and Klein's intrusion made their success less likely, since ABKCO's offer in January 1976 was viewed by Bright [**15] Tunes as an "insider's disclosure of the value of the case." Id. at 803. Consequently, the district judge directed that ABKCO hold the "fruits of its acquisition" from Bright Tunes in trust for Harrison Interests, to be transferred to Harrison Interests by ABKCO upon payment by Harrison Interests of $ 587,000 plus interest from the date of acquisition. II. ABKCO'S ARGUMENTS ON APPEAL ABKCO presents two principal arguments on appeal. First, it is argued that ABKCO did not breach its fiduciary duty to Harrison because (a) no confidential information was improperly passed from ABKCO to Bright Tunes during the negotiations to purchase HSF, and (b) there was no causal relationship between ABKCO's actions and Harrison Interests' failure to obtain settlement. Second, appellant argues [*994] that the scope of the constructive trust imposed by Judge Owen is too broad because it covers foreign rights. ABKCO contends that the remedy thus jeopardizes the post- liability-trial settlements of the foreign infringement claims between ABKCO and Harrison Interests (through Essex). As to the first contention, we reject appellant's arguments and affirm the decision of the district [**16] judge. With respect to appellant's objection to the scope of the remedy, however, we modify the judgment and remand the case for further consideration in light of this opinion. (permitting Harrison Interests to assert counterclaims), "The fact situation presented [**22] is novel in the extreme. Restated in simplest form, it amounts to the purchase by a business manager of a known claim against his former client where, the right to the claim having been established, all that remains to be done is to assess the monetary award." We find these facts not only novel, but unique. Indeed, the purchase, which rendered Harrison and ABKCO adversaries, occurred in the context of a lawsuit in which ABKCO had been the prior protector of Harrison's interests. Thus, although not wholly analogous to the side-switching cases involving attorneys and their former clients, this fact situation creates clear questions of impropriety. On the unique facts presented herein, we certainly cannot say that Judge Owen's findings and conclusions were clearly erroneous or not in accord with applicable law. Appellant ABKCO also contends that even if there was a breech of duty, such breach should not limit ABKCO's recovery for copyright infringement because ABKCO's conduct did not cause the Bright Tunes/Harrison settlement negotiations to fail. See 508 F. Supp. at 803 & n.15. Appellant urges, in essence, that a finding of breach of fiduciary duty by an agent, [**23] to be actionable, must be found to have been the proximate cause of injury to the principal. We do not accept appellant's proffered causation standard. An action for breach of [*996] fiduciary duty is a prophylactic rule intended to remove all incentive to breach -- not simply to compensate for damages in the event of a breach. See Diamond v. Oreamuno, 24 N.Y.2d 494, 498, 248 N.E.2d 910, 912, 301 N.Y.S.2d 78, 81 (1969) ("The function of [an action founded on breach of fiduciary duty] . . . is not merely to compensate the plaintiff for wrongs committed by the defendant but . . . 'to prevent them, by removing from agents and trustees all inducement to attempt dealing for their own benefit in matters which they have undertaken for others, or to which their agency or trust relates.'") (emphasis in original). Having found that ABKCO's conduct constituted a breach of fiduciary duty, the district judge was not required to find a "but for" relationship between ABKCO's conduct [**24] and lack of success of Harrison Interests' settlement efforts. ABKCO argues further that the offer to sell substantially what had been gained in the purchase from Bright Tunes to Harrison for $ 700,000, and Harrison's rejection of that offer, see supra note 7, bars Harrison Interests from obtaining a constructive trust in this action, per Turner v. American Metal Co., 268 A.D. 239, 50 N.Y.S.2d 800 (1st Dept. 1944) (where former fiduciary offers former employer what he obtained in violation of fiduciary duty at price equivalent to his cost of acquisition and former employer refuses offer, fiduciary not held liable for breach of duty), appeal dismissed, 295 N.Y. 822, 66 N.E.2d 591 (1946). We find this argument unpersuasive. First, in Turner, unlike the case at bar, there was no finding of breach of fiduciary duty. Moreover, we find somewhat disingenuous ABKCO's claim that a $ 700,000 offer was a "price equivalent to his cost of acquisition," which had been $ 587,000. In any event, it is unclear whether that which ABKCO offered Harrison Interests was equivalent to that which ABKCO had brought from Bright Tunes. Finally, on the facts herein, [**25] we agree that a constructive trust on the "fruits" of ABKCO's acquisition was a proper remedy. See Meinhard v. Salmon, 249 N.Y. at 467, 164 N.E. at 548 ("A constructive trust is then the remedial device through which preference of self is made subordinate to loyalty to others."); In re: McCrory Stores Corp., 12 F. Supp. 267, 269 (S.D.N.Y 1935) (agent prohibited from making profit by acquiring claims against principal (debtor) at discount immediately after resignation and enforcing them at great amount); see also Restatement of Restitution § 200 (1937) (where fiduciary in violation of duty to beneficiary acquires property through use of confidential information, he holds the property so acquired in constructive trust for beneficiary); Restatement (Second) of Agency § 403 (1958) comment (d) (agent employed to settle claim who purchases the claim for himself holds such claim as a constructive trustee of the principal). B. Scope of Constructive Trust: Foreign [**26] Settlements Finally, appellant asserts that if this court is to affirm the district judge's finding of breach and its imposition of a constructive trust, the scope of that constructive trust should be limited to the American infringement claim. Appellant's argument is two- fold. First, appellant contends that because Harrison insisted on settling only the American infringement claim throughout the negotiations, and because the complaint in this case related only to the American claim, the remedy should be limited to that claim. Second, appellant argues that because the constructive trust encompasses foreign rights, the remedy serves to disturb settlement agreements that have already been achieved as to the foreign infringement claims against Harrison. As to appellant's first contention, in our view the district judge was not constrained by the scope of the settlement negotiations in fashioning this equitable relief. Moreover, it was within the discretion of the district court to provide a remedy not simply as to appellant's claims, but also as to appellee's counterclaims. See Alexander v. Hillman, 296 U.S. 222, 242, 56 S. Ct. 204, 80 L. Ed. 192 (1935) ("Courts [**27] of equity . . . will decide all matters in dispute and decree complete relief."). The second point raised by appellant, however, in our view, warrants modification [*997] of the judgment and remand to the district court for reassessment of the scope of the constructive trust. On April 3, 1980, after the damages trial, but before Judge Owen rendered his opinion, Harrison Interests, through its agent, Essex Music International, with full knowledge that its counterclaim was pending before Judge Owen, voluntarily entered into agreements with ABKCO, settling MSL infringement claims in various foreign territories as between HSF subpublishers and MSL subpublishers. As a general matter, we note first that courts favor the policy of encouraging voluntary settlement of disputes. See, e.g., Williams v. First National Bank, 216 U.S. 582, 595, 54 L. Ed. 625, 30 S. Ct. 441 (1910); In re: Penn Central Transportation Co., 455 F.2d 811, 814 n. 6 (3d Cir.), cert. denied, [**28] 407 U.S. 915, 92 S. Ct. 2440, 32 L. Ed. 2d 690 (1972); D.H. Overmyer Co. v. Loflin, 440 F.2d 1213, 1215 (5th Cir.), cert. denied, 404 U.S. 851, 30 L. Ed. 2d 90, 92 S. Ct. 87 (1971); Petty v. General Accident Fire and Life Assurance Corp., 365 F.2d 419, 421 (3d Cir. 1966). Bearing this principle in mind, we conclude that, since the parties or their agents entered into settlement agreements as to certain foreign infringement claims while the damages issues were sub judice, the trust should not include that portion of ABKCO's acquisition constituting a purchase of the foreign rights involved in those settlements. We remand the case to the district court to determine what portion of the $ 587,000 paid by ABKCO to Bright Tunes is attributable to the foreign rights involved in the April 3, 1980 settlement. That sum should be subtracted from the $ 587,000 to determine the amount the Harrison Interests must pay to acquire only the rights not affected by the April 3, 1980 settlement. III. CROSS-APPEAL: COPYRIGHT INFRINGEMENT [**29] "It is well settled that copying may be inferred where a plaintiff establishes that the defendant had access to the copyrighted work and that the two works are substantially similar." Warner Brothers v. American Broadcasting Companies, 654 F.2d 204, 207 (2d Cir.1981). In this case Judge Owen determined that "My Sweet Lord is the very same song as He's So Fine with different words, and Harrison had access to He's So Fine." Bright Tunes Music Corp. v. Harrisongs Music, Ltd., 420 F. Supp. at 180-81. He concluded that the substantial similarity coupled with access constituted copyright infringement, even though subconsciously accomplished. See id. at 180, 181 (citing Sheldon v. Metro-Goldwyn Pictures Corp., 81 F.2d 49, 54 (2d Cir.1936); Northern Music Corp. v. Pacemaker Music Co., 147 U.S.P.Q. 358, 359 (S.D.N.Y.1965)). Appellees argue on cross-appeal that the instant case differs significantly from those cases relied upon by the district court to support its conclusion of subconscious infringement, and from the only other case in this circuit which held that subconscious copying can constitute infringement, [**30] i.e., Fred Fisher, Inc. v. Dillingham, 298 F. 145 (S.D.N.Y. 1924). In addition, they urge upon this court the position that it is unsound policy to permit a finding of copyright infringement on the basis of subconscious copying. We reject both arguments and affirm the decision of the district judge. First, we do not find dispositive appellees' distinction between the instant case and Sheldon and Fisher cases. n11 Appellees point out that in those two cases, the infringing work was created very shortly after the infringer had had access to the infringed work. Here, in contrast, appellees note. Harrison's access to HSF occurred in 1963, some six years before he composed MSL. We disagree with appellees' position that such temporal remoteness precludes a finding of access. First, Harrison himself [*998] admitted at trial that he remembered hearing HSF in the early sixties when it was popular. Moreover, even if there had not been such direct evidence of access, access still may have been found because of the wide dissemination of HSF at that time. See Arnstein v. Porter, 154 F.2d 464, 469 (2d Cir.1946); 3 M. Nimmer, Nimmer [**31] on Copyright § 13.02[A] (1983). Indeed, in 1963, the year of Harrison's admitted access to HSF, the song was "Number One on the Billboard charts" in the United States for five weeks, and it was one of the "Top Thirty Hits" in England for seven weeks that same year. Thus, even if the evidence, standing alone, "by no means compels the conclusion that there was access . . . it does not compel the conclusion that there was not." Heim v. Universal Pictures Co., 154 F.2d 480, 487 (2d Cir.1946).