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. 505, 600, Dockets 82-7421, 82-7461.
United States Court of Appeals,
Second Circuit.
Argued Nov. 24, 1982.
Decided Nov. 3, 1983.
Gideon Cashman, New York City (Pryor, Cashman, Sherman & Flynn, New York City, James A. Janowitz, Donald S. Zakarin, New York City, of counsel), for plaintiff-appellant-cross-appellee.
Joseph J. Santora, New York City (Santora Shenkman & Kushel, New York City, Robert B. McKay, New York City, of counsel), for defendants-appellees-cross-appellants.
Cleary, Gottlieb, Steen & Hamilton, New York City (Richard W. Hulbert, Albert S. Pergam, New York City, of counsel), co-counsel for Apple Records, Inc.
Before PIERCE, WINTER and PRATT, Circuit Judges.
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 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"),1 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").2
When this action was commenced, the business affairs of The Beatles, 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.,
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.4 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 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 Bright Tunes, although no settlement resulted.
Subsequent to the Klein-Barash meeting, Bright Tunes went into "judicial dissolution proceedings." This infringement action was placed on the district court's suspense calendar on March 3, 1972, and was resumed by Bright Tunes (in receivership) in early 1973. Also in early 1973 (March 31), ABKCO's management contract with The Beatles expired. Bitter and protracted litigation ensued between The Beatles and ABKCO over the winding down of management affairs--a dispute that ended in 1977 with The Beatles paying ABKCO $4.2 million in settlement.
There is some disagreement as to whether further settlement negotiations took place between Harrison Interests and Bright Tunes between 1973 and mid-1975.5 It appears undisputed, however, that Harrison Interests' attorney at least initiated settlement talks in the late summer of 1975; that in the period October 1975 through February 1976, settlement discussions took place between Bright Tunes' counsel and counsel for Harrison Interests regarding settlement of this infringement action (an offer by Harrison Interests based on United States royalties); and that those discussions were in the 50%/50% or 60%/40% range. These discussions culminated in a $148,000 offer by Harrison Interests in January of 1976 (representing 40% of the United States royalties).
At about the same time (1975), apparently unknown to George Harrison, Klein had been negotiating with Bright Tunes to purchase all of Bright Tunes' stock. That such negotiations were taking place was confirmed as early as October 30, 1975, in a letter from Seymour Barash (Bright Tunes' former President) to Howard Sheldon (Bright Tunes' Receiver), in which Barash reported that there had been an offer from Klein for a substantial sum of money. The same letter observed that "[Klein] would not be interested in purchasing all of the stock of Bright Tunes ... if there was any doubt as to the outcome of this litigation."
In late November 1975, Klein (on behalf of ABKCO) offered to pay Bright Tunes $100,000 for a call on all Bright Tunes' stock, exercisable for an additional $160,000 upon a judicial determination as to copyright infringement. In connection with this offer, Klein furnished to Bright Tunes three schedules summarizing the following financial information concerning "My Sweet Lord:" (1) domestic royalty income of Harrisongs Music, Inc. on MSL; (2) an updated version of that first schedule; and (3) Klein's own estimated value of the copyright, including an estimate of foreign royalties (performance and mechanical) and his assessment of the total worldwide future earnings.
Barash considered the Klein offer only a starting point. He thought that a value of $600,000 was more accurate and recommended a $200,000 call, based on a $600,000 gross sales price. Also in December 1975, Barash noted, in a letter to counsel for the Peter Maurice Co., that Harrison Interests' counsel had never furnished a certified statement of worldwide royalties of MSL, but that from conversations between Stephen Tenenbaum (accountant for several Bright Tunes stockholders) and Klein, Bright Tunes had been given that information by Klein.
Shortly thereafter, on January 19, 1976, Barash informed Howard Sheldon (Bright Tunes' Receiver) of the Klein offer and of the Bright Tunes stockholders' unanimous decision to reject it. Barash noted that "[s]ince Mr. Klein is in a position to know the true earnings of 'My Sweet Lord', his offer should give all of us an indication of the true value of this copyright and litigation." Sheldon responded in a letter dated January 21, 1976, noting, inter alia, that Harrison's attorneys were informed that no settlement would be considered by Bright Tunes until total sales of MSL were determined after appropriate figures were checked.
On January 30, 1976, the eve of the liability trial, a meeting was held by Bright Tunes' attorney for all of Bright Tunes' stockholders (or their counsel) and representatives of Ronald Mack. The purpose of the meeting was to present Bright Tunes with an offer by Harrison Interests of $148,000, representing 40% of the writers' and publishers' royalties earned in the United States (but without relinquishment by Harrison of the MSL copyright). At the time, Bright Tunes' attorney regarded the offer as "a good one."
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.,
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 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."6
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 by 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.7C. 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.8 An eight-day bench trial was held on damages and counterclaims between August 27 and October 15, 1979.
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.9 ABKCO then settled foreign claims with Essex, also on April 3, 1980.
The damages decision was filed on February 19, 1981. ABKCO Music, Inc. v. Harrisongs Music, Ltd.,
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 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 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.
A. Breach of Fiduciary Duty
There is no doubt but that the relationship between Harrison and ABKCO prior to the termination of the management agreement in 1973 was that of principal and agent, and that the relationship was fiduciary in nature. See Meese v. Miller,
One aspect of this inquiry concerns the nature of three documents--schedules of MSL earnings--which Klein furnished to Bright Tunes in connection with the 1975-76 negotiations. Although the district judge did not make a specific finding as to whether each of these schedules was confidential, he determined that Bright Tunes at that time was not entitled to the information.
Another aspect of the breach of duty issue concerns the timing and nature of Klein's entry into the negotiation picture and the manner in which he became a plaintiff in this action. In our view, the record supports the position that Bright Tunes very likely gave special credence to Klein's position as an offeror because of his status as Harrison's former business manager and prior coordinator of the defense of this lawsuit. See, e.g., letter from Barash to Sheldon, dated January 19, 1976 ("Since Mr. Klein is in a position to know the true earnings of My Sweet Lord, his offer should give all of us an indication of the true value of this copyright and litigation."). To a significant extent, that favorable bargaining position necessarily was achieved because Klein, as business manager, had intimate knowledge of the financial affairs of his client. Klein himself acknowledged at trial that his offers to Bright Tunes were based, at least in part, on knowledge he had acquired as Harrison's business manager.
Under the circumstances of this case, where there was sufficient evidence to support the district judge's finding that confidential information passed hands, or, at least, was utilized in a manner inconsistent with the duty of a former fiduciary at a time when this litigation was still pending, we conclude that the district judge did not err in holding that ABKCO had breached its duty to Harrison.
We find this case analogous to those "where an employee, with the use of information acquired through his former employment relationship, completes, for his own benefit, a transaction originally undertaken on the former employer's behalf." Group Association Plans, Inc. v. Colquhoun,
In so concluding, we do not purport to establish a general "appearance of impropriety" rule with respect to the artist/manager relationship. That strict standard--reserved principally for the legal profession--would probably not suit the realities of the business world. The facts of this case otherwise permit the conclusion reached herein. Indeed, as Judge Owen noted in his Memorandum and Order of May 7, 1979 (permitting Harrison Interests to assert counterclaims), "The fact situation presented 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 breach 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
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.,
Finally, on the facts herein, we agree that a constructive trust on the "fruits" of ABKCO's acquisition was a proper remedy. See Meinhard v. Salmon,
B. Scope of Constructive Trust: Foreign 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,
The second point raised by appellant, however, in our view, warrants modification 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,
III. CROSS-APPEAL: COPYRIGHT INFRINGEMENT
"[I]t 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,
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, i.e., Fred Fisher, Inc. v. Dillingham,
First, we do not find dispositive appellees' distinction between the instant case and Sheldon and Fisher cases.11 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 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,
As to the requisite finding of substantial similarity, we affirm the determinations of the district judge, since we do not find them to be clearly erroneous, Bright Tunes Music Corp. v. Harrisongs Music, Ltd.,
This case in unlike Darrell v. Joe Morris Music Co.,
[S]uch simple, trite themes as these are likely to recur spontaneously; ... It must be remembered that, while there are an enormous number of possible permutations of the musical notes of the scale, only a few are pleasing; and much fewer still suit the infantile demands of the popular ear. Recurrence is not therefore an inevitable badge of plagiarism.
Id. at 80. We find this case distinguishable. Indeed, on the facts herein, the district judge did not find repetition of "trite themes," but rather, "a highly unique pattern,"
Appellees argue next that it is unsound policy to permit a finding of infringement for subconscious copying, particularly on the facts of this case. They assert that allowing for subconscious infringement brings the law of copyright improperly close to patent law, which imposes a requirement of novelty. See Alfred Bell & Co. v. Catalda Fine Arts, Inc.,
It is not new law in this circuit that when a defendant's work is copied from the plaintiff's, but the defendant in good faith has forgotten that the plaintiff's work was the source of his own, such "innocent copying" can nevertheless constitute an infringement. See Sheldon v. Metro-Goldwyn Pictures Corp.,
Because there was sufficient evidence of record to support the district judge's findings of substantial similarity and access, we affirm the finding of copyright infringement.
IV. CONCLUSION
Having considered all of the parties' arguments on appeal and cross-appeal, we affirm, with modification, the decisions of the district court and remand to the district judge for reassessment of the scope of the remedy, consistent with this opinion. Each party is to bear its own fees and costs.
Notes
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
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)
References to "ABKCO" or to "Klein" are to include ABKCO Music, Inc., its parent ABKCO Industries, Inc., and Allen B. Klein
At this meeting Klein suggested purchasing the entire Bright Tunes catalogue (which included HSF) as a means of resolving the lawsuit, although apparently no precise dollar amount was mentioned. At the same time, Klein informed Barash that Harrison was unwilling to admit to copyright infringement. The substance of this settlement discussion was later recorded in a memorandum to file, dated January 3, 1973, of Eugene E. Murphy (an attorney for Bright Tunes' Receiver). According to Murphy's memorandum, Barash rejected Klein's suggested offer to purchase and counter-offered to pay Harrison half of the proceeds of the sale of MSL, with Bright Tunes receiving the other half, but with Harrison surrendering the MSL copyright to Bright Tunes
According to Harrison's attorney, on September 9, 1975 Bright Tunes was offered $50,000 in settlement of the United States and Canadian rights; Bright Tunes counter-offered with a demand of $150,000; and in October 1975 the Harrison offer rose to $100,000, making the parties arguably close to an agreed settlement figure
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 to 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.
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
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
See supra note 6
For example, the royalty rate (as opposed to the exact figures which could have been gleaned from trade publications) was considered confidential. In addition, at the damages trial, the parties stipulated that certain Capitol Records information be kept confidential
The other case cited by the district court, Northern Music Corp. v. Pacemaker Music Corp.,
We note that although a finding of innocent infringement does not affect liability, such a finding might constitute a factor to be considered in the fashioning of remedies in a given case. See generally 3 M. Nimmer, Nimmer on Copyright Sec. 13.08 (1983), and cases cited therein