Keiler v. Harlequin Enterprises Ltd.
751 F.3d 64
| 2d Cir. | 2014Background
- Harlequin Enterprises (parent) shifted the named contracting publisher role to Swiss subsidiaries (HEBV, later HBSA) in the Publishing Agreements; Harlequin Enterprises continued to draft, market, and administer the books while the subsidiaries issued royalty statements and payments.
- The Publishing Agreements define the "Publisher" as HEBV/HBSA and treat Harlequin Enterprises as a "Related Licensee," and contain "All Other Rights" and "Other Rights" clauses allocating 50% of "Net Amount Received" to authors for licensed rights and requiring intra-group license fees to be "equivalent to the amount reasonably obtainable" from an unrelated licensee.
- As e-book sales expanded, Harlequin Enterprises treated e-books as licensed from Harlequin Switzerland to Harlequin Enterprises and reported that Harlequin Switzerland received 6–8% of cover price; authors were paid 50% of that amount (3–4% of cover).
- Plaintiffs (authors) sued as a putative class alleging (1) Harlequin Enterprises should be treated as the Publisher under theories of agency, assignment, and alter ego to obtain higher royalties; (2) the intra-group license fee (6–8%) was not equivalent to an arm’s-length rate and thus breached the Publishing Agreements; and (3) unjust enrichment (later withdrawn).
- District court dismissed all claims under Rule 12(b)(6). On appeal, Second Circuit affirmed dismissal of the agency/assignment/alter ego claims but reversed dismissal of the claim challenging the reasonableness of the intra-group license fee, holding the pleading sufficient to proceed to discovery.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether agency, assignment, or alter ego theories can override the contractually defined "Publisher" | Keiler: course of dealing and Harlequin Enterprises’ operational control show it is the true Publisher | Harlequin: the written agreements unambiguously name HEBV/HBSA as Publisher and permit delegation/assignment to related entities | Held: No — the written, unambiguous contract controls; vicarious-liability theories cannot rewrite it (claims 1–3 dismissed) |
| Whether extrinsic evidence (course of dealing) may vary the clear contract term "Publisher" | Keiler: extrinsic facts show parties intended Harlequin Enterprises to act as Publisher | Harlequin: New York law bars using extrinsic evidence to vary a clear, complete written contract | Held: Court enforces the written definition; extrinsic evidence cannot vary an unambiguous contract |
| Whether the intra-group license fee (6–8%) satisfied the agreement requirement that fees be "equivalent to the amount reasonably obtainable" from an unrelated licensee | Keiler: alleged facts (including a disclosed 40% sublicense and industry survey) support that 6–8% is not equivalent and that industry rates are much higher | Harlequin: plaintiffs’ price allegations are conclusory and insufficiently particularized | Held: Denied dismissal — plaintiffs pleaded sufficient facts (including allegations on information and belief and discovery begun) to make the claim plausible; remand for discovery |
| Whether unjust enrichment claim is viable given an express contract covering the subject matter | Keiler: sought recovery for shortfall in royalties | Harlequin: contract governs the relationship, precluding unjust enrichment | Held: Plaintiffs withdrew the unjust enrichment claim at oral argument (not decided on merits) |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility pleading standard)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard; accept factual allegations, not legal conclusions)
- Greenfield v. Philles Records, 98 N.Y.2d 562 (integration and enforcement of clear, unambiguous contracts under New York law)
- Law Debenture Trust Co. of N.Y. v. Maverick Tube Corp., 595 F.3d 458 (contract ambiguity and extrinsic evidence principles)
- Nolan v. Sam Fox Pub. Co., Inc., 499 F.2d 1394 (contract construed to avoid impossibility where named publisher dissolved)
- Arista Records LLC v. Doe 3, 604 F.3d 110 (permissibility of pleading on information and belief when facts are peculiarly within defendant’s control)
- Ideal Steel Supply Corp. v. Anza, 652 F.3d 310 (Rule 8 notice pleading and relation to discovery)
- Boykin v. KeyCorp, 521 F.3d 202 (standards for pleading based on information and belief)
- Croce v. Kumit, 737 F.2d 229 (extrinsic evidence may not vary clear written contracts)