Opinion
No. 00 Civ. 233 (RMB).
October 12, 2001
DECISION AND ORDER
Plaintiffs Michael Cooper, Stephen Coore, Richard Daley, Irving Jarrett, William Stewart, and William Clarke (collectively "Plaintiffs") filed this action against Defendant Sony Music International ("Defendant" or "Sony") asserting claims for copyright infringement under the Copyright Act of 1976, 17 U.S.C. §§ 101 et seq. (the "Copyright Act"), breach of contract and/or unjust enrichment, breach of fiduciary duty, and fraud under New York law. Plaintiffs seek injunctive relief, damages, lost profits, and attorney's fees. Defendant now moves to dismiss (some of) Plaintiffs' claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure ("Fed.R.Civ.P."). For the reasons stated, Defendant's motion is granted as detailed below.
Sony Music International is an unincorporated division of Sony Music Entertainment, Inc. See Deposition of Stuart Bondell dated June 2, 2000 ("Bondell Dep.") at 9, 11 (attached as Exhibit D to Affidavit of James E. Doherty in Opposition to Defendant's Motion to Dismiss the Amended Complaint). Plaintiffs refer to "Sony Music" as the Defendant; Defendant refers to itself as Sony Music Entertainment Inc.
I. Background
This is a dispute over the right(s) to commercially exploit Plaintiffs' music between July 1993 and March 1999.
In the 1970s, Plaintiffs comprised a music group known as "Third World." (Amended Complaint ("Am. Compl.") ¶ 5). Based in Jamaica, Third World composed and performed reggae music. (Id.). Plaintiffs were equal shareholders in Third World Music Limited, the corporate vehicle which supplied their services. (Id. at ¶¶ 1, 6). On or about January 30, 1981. Third World and Sony entered into an agreement (the "Recording Agreement") pursuant to which Third World would make certain master recordings for commercial exploitation by Sony throughout the world, excluding the West Indies, and Third World was entitled to receive certain royalties. (Id. at ¶ 6). The Recording Agreement, which was governed by New York law, provided that the copyright in Third World recordings belonged to Plaintiffs and it obligated Sony to obtain the copyright in Third World master recordings in Plaintiffs' name. (Id. at ¶ 8).
The original complaint, dated January 11, 2000, contained breach of contract and fiduciary duty claims only. On July 7, 2000, Plaintiffs served an amended complaint which added claims for fraud and (federal) copyright infringement.
Plaintiffs delivered to Sony five (5) albums pursuant to the Recording Agreement. (Id. at ¶ 11). The Recording Agreement contractual term was to end nine (9) months after the last (5th) album was delivered to Sony. (Id. at ¶ 13). The fifth and final album, entitled Hold On To Your Love, was delivered to Sony in October 1987; the term of the Recording Agreement, therefore, was to end in June 1988. (Id.).
The Recording Agreement embraced "the initial Contract Period," "the First Option Period," and "the Second Option Period." (Am. Compl. ¶ 11). Plaintiffs allege that pursuant to the Recording Agreement
Two albums were required to be delivered to Sony in each of the Initial Contract Period and the First Option Period. These four albums are collectively referred to as the "Masters." The fifth album was to be delivered in the Second Option Period, and is referred to as the "Second Option Masters." (Am. Compl. ¶ 11).
in the event that all monies paid by Sony to plaintiffs for the record albums delivered to it by plaintiffs during the initial Contract Period and First Option Period of the Agreement had been recouped from royalties otherwise due plaintiffs under the Agreement by the first semiannual accounting statement rendered by Sony to plaintiffs after the end of the Agreement, all rights granted to Sony under the Agreement would terminate "as of the date five years after the end of the term of this agreement."
(Am. Compl. ¶ 9) (citing ¶ 1.08(d)(i) of the Recording Agreement).
The parties agree that Sony's rights to the music (previously delivered) continued until June 1993, i.e. five years after the Recording Agreement ended. (Am. Compl. ¶ 14) (Memorandum of Law in Support of Defendant's Motion to Dismiss ("Def. Mem.") at 5). Similarly, the parties agree that, pursuant to the Recording Agreement, if Sony recouped its advances to Third World from the sales of the fifth album by the time of the third semiannual accounting statement rendered by Sony after the end of the term of the Recording Agreement, then Sony's rights in that album would terminate five years later, i.e. in January 1995. (Am. Compl. ¶ 15) (Def. Mem. at 5).
Plaintiffs contend that up to and including 1999, Defendant, in its semiannual accounting statements, improperly indicated that it had not recouped the advances it had made to Plaintiffs with respect to either the Masters or the Second Option Masters. (Am. Compl. ¶ 16). Plaintiffs assert that Sony has continued commercially to exploit the five albums (among other ways, by utilization of foreign subsidiaries of Sony) and retain the profits generated by such exploitation. (Id. at ¶¶ 17-18). Defendant maintains, among other things, that "[a]lthough Sony's rights in and to Third World's first four albums apparently terminated in June of 1993, and in the fifth album in January of 1995, Sony and Third World continued to perform in accordance with the Recording Agreement — by Sony exploiting Third World's albums, and accounting to Third World for royalties derived from exploitation, up and until early 1999 and by Third World accepting the accountings from such exploitation with [sic] objection." (Def. Mem. at 6).
Sony's instant motion is premised upon three grounds: (i) Plaintiffs' copyright infringement claims are barred, in part, by the statute of limitations (id. at 16-17); (ii) Plaintiffs' state law claims are preempted by the Copyright Act and/or are insufficient as a matter of law (Def. Mem. at 6-16); and (iii) Plaintiffs' claims relating to Sony's foreign affiliates are jurisdictionally improper and insufficient as a matter of law (id. at 17-20).
II. Standard of Review
"In reviewing a [Fed.R.Civ.P.] 12(b)(6) motion, this Court must accept the factual allegations of the complaint as true and must draw all reasonable inferences in favor of the plaintiff."Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir. 1996) (citingHernandez v. Coughlin, 18 F.3d 133, 136 (2d Cir.), cert. denied, 513 U.S. 836 (1994)). The movant's burden is very substantial, as "[t]he issue is not whether a plaintiff is likely to prevail ultimately, `but whether the claimant is entitled to offer evidence to support the claims.'" Gant v. Wallingford Bd. of Educ., 69 F.3d 669 (2d Cir. 1995) (quoting Weisman v. LeLandais, 532 F.2d 308, 311 (2d Cir. 1976) (per curiam)). In sum, "[t]he motion to dismiss for failure to state a claim is disfavored and is seldom granted." Bower v. Weisman, 639 F.Supp. 532, 539 (S.D.N.Y. 1986) (citing Arfons v. E.I. DuPont de Nermours Co., 261 F.2d 434, 435 (2d Cir. 1958)).
III. Analysis
A. Federal Copyright Infringement Claim
Defendant's make only a partial motion to dismiss Plaintiff's copyright infringement claim. (Def. Mem. at 16) ("Third World's copyright infringement claims are barred, in part, under the statute of limitations.") (capitals omitted). It is conceded that Plaintiffs may pursue a copyright claim under 17 U.S.C. §§ 101et seq., for the period March 5, 1996 through March 5, 1999. "[T]o the extend that Third World has any colorable copyright infringement claim at all, that claim can date back only three years to March 5, 1996." (Id.).
There are two elements to a copyright infringement claim: "(1) ownership of a valid copyright; and (2) copying of constituent elements of the work that are original." Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361 (1991); accord Fonar Corp. v. Domerick, 105 F.3d 99, 103 (2d Cir. 1997).
It should be noted that, in ruling upon this motion, the Court is in no way passing upon the merits of Plaintiffs' claim.
Defendant contends that "Third World's copyright infringement claims are barred to the extent that they seek recovery of Sony's profits that accrued prior to the three years immediately preceding this action." (Def. Mem. at 16). Plaintiff counters that "[i]n cases such as this, where `extraordinary circumstances' exist, Plaintiffs should not be restricted in the scope of their recovery to actions occurring within the traditional three year copyright stature of limitations, but should instead be entitled to full recovery from July 1, 1993, the onset of the infringing conduct." (Pl. Mem. at 22).
17 U.S.C. § 507 states:
(b) Civil Actions. — No civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.
Defendant maintains that Plaintiffs' copyright infringement claim can date back only to March 5, 1996 because the parties entered into an agreement to toll the statute of limitations as of March 5, 1999. (Id. at 17).
To invoke the doctrine of equitable tolling (by fraudulent concealment), a plaintiff must plead three elements: (1) wrongful concealment by the defendant; (2) plaintiff's inability to discover the nature of the claim within the limitations period; and (3) plaintiff's due diligence in discovering the claim. See Antonios A. Alevizopoulos and Assocs. v. Comcast Int'l Holdings, Inc., 100 F. Supp. 2d 178, 184 (S.D.N.Y. 2000). "The evidence submitted by plaintiff to support a fraudulent concealment claim must not be conclusory, and must establish a conspiracy or other fraudulent wrong that precluded plaintiff's possible discovery of the harm she suffered." Mahoney v. Beacon City Sch. Dist., 988 F. Supp. 395, 400 (S.D.N.Y. 1997).
To satisfy the particularity requirement of [ Fed.R.Civ.P.] 9(b), a complaint must adequately specify the statements it claims were false or misleading, give particulars as to the respect in which plaintiff contends the statements were fraudulent, state when and where the statements were made, and identify those responsible for the statements.Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989). The complaint must also "allege facts which give rise to a strong inference that the defendants possessed the requisite fraudulent intent."Comcast, 100 F. Supp. at 184 (quoting Cosmas, 886 F.2d at 11).
Plaintiffs' complaint fails to adequately plead the second and third tolling elements. Plaintiffs have not adequately alleged either an "inability to discover the . . . claim" or their "reasonable diligence" to discover Defendant's alleged wrongdoing. See Comcast, 100 F. Supp. at 184. For example, there are no allegations that Plaintiffs ever questioned the royalty statements or sought to inspect or audit Sony's books. Rather, "Third World merely alleged that it was not aware of its claim because Sony issued `false and misleading royalty statements' that failed to reflect Third World's recoupment of certain advanced monies. . . ." (Reply Memorandum of Law in Support of Defendant's Motion to Dismiss ("Def. Reply Mem.") at 9-10).
Plaintiffs have alleged that Defendant wrongfully concealed monies owed to Plaintiffs: "Sony misrepresented to plaintiffs the amount of monies due to be paid by Sony to plaintiffs pursuant to the terms of the Agreement. . . . Sony's conduct . . . was intentionally wilful, wanton, and malicious." (Am. Compl. ¶¶ 41, 52).
Plaintiffs conclude that it was "practically impossible for them to audit Sony Music to verify the statements" due to the "chilling effect" that the misrepresentations made by Sony had on Plaintiffs; (Pl. Opp. at 5), and that the expense of incurring an audit was not justified until "Plaintiffs' unrecouped position . . . had become whittled down enough." (Pl. Opp. at 6). Such statements are insufficient. "[I]t is well established that conclusory arguments as to reasonable diligence, both in the context of inquiry notice and fraudulent concealment, must fail."See Giant Group, Ltd. v. Sands, 142 F. Supp. 2d 503, 509 (S.D.N.Y. 2001); see also Salinger v. Projectavision, Inc., 934 F. Supp. 1402, 1412 n. 6 (S.D.N.Y. 1996).
B. State Law Claims
Defendant maintains that Plaintiffs' (first) claim for "unjust enrichment cannot avoid preemption." (Def. Mem. at 9). Plaintiffs assert that their first claim is not based on unjust enrichment, but that it is a claim for breach of contract and that "[a]s a general rule, breach of contract claims are not preempted by the Copyright Act." (Memorandum of Law in Opposition to Defendants' Motion to Dismiss ("Opp. Mem.") at 9).
Section 301 of the Federal Copyright Act ("§ 301") provides, in pertinent part, that all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106 in works of authorship that are fixed in a tangible medium of expression and come within the subject matter of copyright . . . are governed exclusively by this title. [N]o person is entitled to any such right or equivalent right in any such work under the common law or statutes of any State.17 U.S.C. § 301(a). Courts in this judicial circuit make a two-part inquiry in determining whether the Act preempts state law claims. See, e.g., Lennon v. Seaman, 63 F. Supp. 2d 428, 436 (S.D.N.Y. 1999); Boyle v. Stephens Inc., No. 97 Civ. 1351 (SAS), 1998 WL 690816, at *6 (S.D.N.Y. Sept. 29, 1998). A state law claim is preempted when: (i) the particular work in which state law rights are claimed falls within "the subject matter of copyright" as defined in Sections 102 and 103 of the Act; and (ii) the state law claim seeks to vindicate "legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by Section 106" of the Act. National Basketball Ass'n. v. Motorola, Inc., 105 F.3d 841, 848 (2d Cir. 1997). The first requirement has been referred to as the "subject matter requirement" and the second requirement is known as the "general scope requirement."Id. at 848-50.
Plaintiffs' first claim appears to be pled as both a cause of action for unjust enrichment and breach of contract. (Am. Compl. ¶ 22).
The subject matter of copyright consists of any "original works or authorship fixed in any tangible medium of expression" and includes "sound recordings." It is uncontroverted that Plaintiffs' works — all five recordings — fall within the subject matter of the Copyright Act. See 17 U.S.C. § 102(a).
To assess whether the general scope requirement is met, courts in this circuit determine whether or not the state cause of action contains an "extra element." "[I]f an extra element is required instead of or in addition to the acts of reproduction, performance, distribution or display, in order to constitute a state-created cause of action, then the right does not lie within the general scope of copyright, and there is no preemption."Computer Assocs. Int'l v. Altai, Inc., 982 F.2d 693, 716 (2d Cir. 1992) (emphasis added). To the extent that Plaintiffs' first claim sounds in unjust enrichment, the Court finds that it is preempted. "The overwhelming majority of courts in this circuit have held that an unjust enrichment claim based upon the copying of subject matter within the scope of the Copyright Act is preempted." See Boyle, 1998 WL 690816, at *6 (citing cases).
Similarly, to the extent that Plaintiffs assert a claim for breach of contract, the Court finds that claim is preempted.See Arpaia v. Anheuser-Busch Cos., 55 F. Supp. 2d 151 (W.D.N.Y. 1999) (holding the plaintiff's claim of breach of implied contract was preempted where the complaint stated that the claim was based on the defendant's alleged use of the copyrighted works); American Movie Classics Co. v. Turner Enter. Co., 922 F. Supp. 926, 931-32 (S.D.N.Y. 1996) (holding that breach of contract claim was preempted where the express contract governed rights equivalent to those under the Copyright Act);Wolff v. Inst. of Elec. And Elecs. Eng'rs., Inc., 768 F. Supp. 66, 69 (S.D.N.Y. 1991) (holding that the breach of contract claim was preempted where the alleged breach was an infringement of the plaintiff's copyright). The basis for Plaintiffs' breach of contract claim is that Sony "wrongfully commercially exploit[ed] the Masters." (Am. Compl. ¶ 22). This is also the very essence of its Copyright Act claim. Similar facts were presented in American Movie Classics where United States District Court Judge Sidney H. Stein granted defendant's motion to dismiss on preemption grounds.
Other courts in this circuit have held that breach of contract claims are not preempted by § 301. See, e.g., Katz Dochrermann Epstein, Inc. v. Home Box Office, No. 97 Civ. 7763 (TPG), 1999 WL 179603, at *4 (S.D.N.Y. Mar. 31, 1999) (holding that the implied-in-fact contract claim was not preempted because the claim sought to enforce a promise to pay for use of plaintiff's ideas, regardless of any subsequent rights plaintiff may have acquired under the Copyright Act); Architectronics, Inc. v. Control Syst. Inc., 935 F. Supp. 425, 438-41 (S.D.N.Y. 1996) (holding that contract claim was not preempted because the contract claim contained the extra element of a promise by the defendant); Brignoli v. Balch Hardy and Scheinman, Inc., 645 F. Supp. 1201, 1204-06 (S.D.N.Y. 1986) (holding that plaintiff's breach of contract claims, including a breach of confidentiality agreement, were not preempted because they involved "extra elements"); Smith v. Weinstein, 578 F. Supp. 1297, 1307-08 (S.D.N.Y. 1984) (holding that, while any claim that rested not on the actual breach of the contract but rather on unauthorized copying was preempted, the breach of contract claims focusing on rights such as confidentiality and payment for ideas were not preempted).
There is no allegation that [Defendant] breached any provisions of the Agreement other than those providing [Plaintiff] with the exclusive right to exhibit the films during the windows specified in the Agreement. . . . [I]t appears clear that the rights asserted under the contract claim are equivalent to the Copyright Act's exclusive right of public performance. . . . Accordingly, [Plaintiff's] breach of contract claim is preempted.American Movie Classics, 922 F. Supp. at 931-32. There is no allegation here that Sony breached any provisions of the Recording Agreement other than those providing Sony with the right commercially to exploit the recordings. (See Am. Compl. ¶ 22) ("Sony, by wrongfully commercially exploiting the Masters, has breached the terms of the Agreement and been unjustly enriched.").
Plaintiffs' second state law claim is for breach of fiduciary duty/constructive trust. "Sony acted in contravention to plaintiffs' ownership rights in the Masters and has breached its fiduciary duty owed to the plaintiffs." (Am. Compl. ¶ 28). Plaintiffs seek to impose a constructive trust covering the profits Sony derived from its alleged wrongful exploitation of the recordings. (Id. at ¶ 30). Defendant asserts that this claim "must fail because there is no fiduciary relationship between the parties, and therefore either: (1) Third World cannot demonstrate a required element of a constructive trust claim; or (2) Third World's claim for a constructive trust, absent a fiduciary relationship, is identical to its claim for unjust enrichment, which is preempted by its copyright claim." (Def. Mem. at 9).
Under New York law, a party seeking a constructive trust must ordinarily establish four elements: (1) a confidential or fiduciary relationship; (2) a promise, express or implied; (3) a transfer made in reliance on that promise; and (4) unjust enrichment. See In re Koreag, 961 F.2d 341, 352 (2d Cir. 1992). "A fiduciary relationship arises when one has reposed trust or confidence in the integrity or fidelity of another who thereby gains a resulting superiority of influence over the first, or when one assumes control and responsibility over another." Reuben H. Donnely Corp. v. Mark I Mktg. Corp., 893 F. Supp. 285, 289 (S.D.N.Y. 1995). Third World has failed adequately to plead a cause of action for the imposition of a constructive trust. Plaintiffs' claim (conclude) only that "[t]he relationship between the plaintiffs and Sony was one of trust and confidence whereby Sony assumed exclusive control over the Masters for the term of the Agreement promising to share with the plaintiffs a certain percentage of the proceeds from the commercial exploitation of the Masters." (Am. Compl. ¶ 25). As United States District Court Judge John S. Martin has held, "[i]n the absence of special circumstances, no fiduciary relationship exists between a music publisher and composer as a matter of law."Carter v. Goodman Group Music Pub., 848 F. Supp. 438, 444 (S.D.N.Y. 1994). Courts in this district have routinely failed to find a fiduciary duty between a recording artist and a record company. See, e.g., Cafferty v. Scotti Bros. Records, Inc., 969 F. Supp. 193, 205-06 (S.D.N.Y. 1997); Carter, 848 F. Supp. at 445; Rodgers v. Roulette Records, Inc., 677 F. Supp. 731, 739 (S.D.N.Y. 1988). Plaintiffs' conclusory allegations that a fiduciary duty was owed by Sony cannot survive a motion to dismiss. See Mellencamp v. Riva Music Ltd., 698 F. Supp. 1154 (S.D.N.Y. 1988) (dismissing fiduciary duty claims between song-writer and recording company where the parties "d[id] not plead any specific conduct or circumstances upon which trust elements are implicated.").
Third World cites Apple Records, Inc. v. Capitol Records, Inc., 137 A.D.2d 50, 57, 529 N.Y.S. 2d 279 (1st Dept. 1988) in which plaintiff's breach of fiduciary duty claim survived defendant's motion to dismiss because the facts pleaded were sufficient to raise "a colorable issue that an informal fiduciary relationship exist[ed]" between the parties. Id. at 54.
The business dealings between Capitol Records and the Beatles date back to 1962, when the still unacclaimed Beatles entrusted their musical talents to defendant. It is alleged that this relationship proved so profitable to defendant that at one point the Beatles constituted 25 to 30% of its business. Even after the Beatles attained their remarkable degree of popularity and success, they still continued to rely on Capitol Records for the manufacture and distributing of their recordings. It can be said that from such a long enduring relation was born a special relationship of trust and confidence. . . .Id. at 57. Unlike Apple Records, here there is no assertion of a special relationship beyond that which normally exists between contracting parties in an arms-length transaction.
Third World acknowledges that in Mellencamp, the plaintiffs failed to plead facts sufficient to support a fiduciary duty. (Pl. Mem. at 13-14). Notwithstanding, Plaintiffs here have failed to adequately allege specific "trust elements" required of a fiduciary relationship or special circumstances.
Plaintiffs' third state law claim is for alleged intentional misrepresentation (fraud). Defendant contends that the claim should be dismissed as it is "a breach of contract claim wrongly pled as fraud." (Def. Mem. at 14). To support a claim of fraud where a contract exists, a plaintiff must either: "(i) demonstrate a legal duty separate from the duty to perform under the contract; or (ii) demonstrate a fraudulent misrepresentation collateral or extraneous to the contract; or (iii) seek special damages that are caused by the misrepresentations and unrecoverable as contract damages." Bridgestone/Firestone, Inc. v. Recovery Credit Svcs., Inc., 98 F.3d 13, 20 (2d Cir. 1996) (internal citations omitted). Third World's (fraud) claim meets none of these requirements. First, as noted above, no (fiduciary) duty existed between Third World and Sony apart from the duty to perform as reflected in the pleadings. Second, each of the fraudulent misrepresentations alleged in the Amended Complaint is based upon the Recording Agreement, i.e. each allegation references either "the Agreement" or "the Masters and Second Option Masters" (the two groups of works defined pursuant to the Recording Agreement). (See Am. Compl. ¶¶ 41-48). Plaintiffs contend that they satisfy this second requirement (of the fraud test) by alleging that "[t]he misrepresentations made by Sony . . . constituted part of a concerted scheme by Sony to under-report royalties due to plaintiffs." (Am. Compl. ¶ 49). However this conclusory assertion, without more, does not adequately specify the requisite fraudulent conduct. See Federal Rule of Civil Procedure 9(b). Plaintiffs' fraud allegations overlap those giving rise to the breach of contract claim; they do not relate to facts collateral and extraneous to the Recording Agreement.See Metropolitan Transp. Auth. v. Triumph Advertising Productions, Inc., 116 A.D.2d 526, 527 (App.Div. 1986). Third, Plaintiffs do not seek (plead) special damages as a result of the alleged misrepresentations.
On April 21, 2000, United States Magistrate Judge Frank Maas ordered that: "Discovery on jurisdictional issues shall occur before any motion to dismiss is filed and shall be commenced in time to be completed by June 23, 2000." (Scheduling Order dated April 21, 2000). Pursuant to the April 21, 2000 Scheduling Order, Plaintiffs, among other things, deposed Stuart Bondell, Executive Vice President of Sony Music International, Inc., about the details of the relationship between Sony and its foreign affiliates. (See Bondell Dep.).
Defendant asserts that (i) the Court has no jurisdiction over Sony's foreign affiliates; and (ii) Third World cannot recover "at source" profits that were never remitted to Sony in the United States. (Def. Mem. at 17-20). Plaintiffs counter that Sony's foreign affiliates are Sony's "alter egos," and, therefore, that these affiliates need not be named as additional defendants because jurisdiction over Sony is sufficient to reach all of the affiliates plus profits these affiliates may have realized.
Defendant is correct in its assertion that the Court has no (independent) jurisdiction over Sony foreign affiliates. Sony foreign affiliates are not named defendants in the Amended Complaint and, thus, they are not parties to this case.
Defendant contends that under the Copyright Act, Sony cannot be held liable for "at source" profits realized by its foreign affiliates. (Def. Mem. at 20) (citing Sheldon v. Metro-Goldwyn Pictures Corp., 106 F.2d 45, 52 (1939) (Hand, J.),aff'd, 309 U.S. 390 (1940)).
Plaintiffs have not adequately pled "alter ego" liability of Sony affiliates. "[U]nder New York law . . . the in-state activities of one corporate entity may be attributed to another, out-of-state entity for jurisdictional purposes, where the first entity is an "alter-ego" or "mere department" of the second."Seema Gems, Inc. v. Shelgem, Ltd., No. 93 Civ. 4473 (KMW), 1994 WL 86381, at *2 (S.D.N.Y. Mar. 16, 1994). Four factors are considered: (i) common ownership; (ii) financial dependency; (iii) the degree to which the in-state entity is involved in the selection and assignment of the others' executive personnel; and (iv) the degree of control over the marketing and operational policies of the non-state entity. See Jazini v. Nissan Motor Co., 148 F.3d 181, 185 (2d Cir. 1998).
Plaintiffs have not submitted allegations sufficient to support the second, third, and fourth factors used to establish "alter ego" liability. See Palmieri v. Estefan, 793 F. Supp. 1182 (S.D.N.Y. 1992).
The parties do not appear dispute that the first factor — common ownership — is established. See Bondell. Dep. at 13 ("I use the term [foreign] affiliate to mean a Sony Music company which is part of the Sony Music family of companies, all of which are ultimately owned through Sony Corp. in Japan."). In Palmieri v. Estefan, the district court found that foreign affiliates of Sony (or its predecessor-in-interest CBS Records, Inc.) "are sufficiently independent to avoid mere department status." 793 F. Supp. 1182, 1190 (S.D.N.Y. 1992).
IV. Conclusion
For the foregoing reasons, Sony's motion to dismiss [16-1, 16-2, 16-3] is granted, provided however that Plaintiffs' state law fraud claim is dismissed without prejudice, and Plaintiffs may have 20 days from the date hereof to amend (serve and file) its state law fraud claim in accordance with this Order.
Counsel are directed forthwith to appear at a settlement/scheduling conference with the Court on November 30, 2001, at 2:00 p.m., in Courtroom 706 of the U.S. Courthouse, 40 Centre Street, New York, New York. The parties are directed to engage in good faith settlement negotiation prior to the conference with the Court.