Opinion
09 Civ. 10461 (PKC).
January 10, 2011
MEMORANDUM AND ORDER
Plaintiffs Darryl Powlus and John Novajosky bring this action under the Copyright Act, 17 U.S.C. § 501 et al., asserting claims of direct and indirect copyright infringement against Chelsey Direct, LLC, Hanover Direct, Inc., Scandia Down, LLC, Scandia Down Online LLC and Scandia Corporation. The plaintiffs seek over $3.9 million in compensatory and statutory damages and a permanent injunction enjoining the defendants from using the photographs at issue. Defendants move pursuant to Rule 12(b)(1) and 12(b)(6), Fed.R.Civ.P., to dismiss for lack of subject matter jurisdiction and failure to state a claim. Because this court has subject matter jurisdiction over this action and the plaintiffs have stated a plausible claim for copyright infringement, the defendants' motion to dismiss is denied.
BACKGROUND
The following facts are taken from the plaintiffs' Amended Complaint, filed on February 11, 2010. (Docket #6.) For the purposes of this motion, all non-conclusory factual allegations are accepted as true, Iqbal v. Ashcroft, 129 S. Ct. 1937, 1949-50 (2009), and all reasonable inferences are drawn in favor of the plaintiffs, as the non-movants. In re Elevator Antitrust Litig., 502 F.3d 47, 50 (2d Cir. 2007).
In June 2009, Powlus and defendants discussed organizing a photoshoot to create promotional photographs for the defendants. (Am. Compl. ¶ 14.) After these conversations, Powlus planned and carried out the photoshoot. (Am. Compl. ¶¶ 16, 19.) He hired models, photographers, stylists, makeup artists, and Novajosky as a photographer. (Am. Compl. ¶¶ 15, 16.) The plaintiffs "understood that if the photographs were acceptable to defendants, defendants would pay a license fee in an amount to be agreed for the right to use the photographs." (Am. Compl. ¶¶ 14, 16.) The photoshoot occurred from July 27 to July 31, 2009. (Am. Compl. ¶ 19.) The defendants then reviewed the photographs and sought to obtain rights to use the photographs in their 2009/2010 promotions. (Am. Compl. ¶ 20.)
On August 5, 2009, Novajosky and Scandia Down signed an agreement which was titled "Photography Release" (the "Agreement"). (Am. Compl. ¶ 21.) The Agreement states, in part:
This document is referenced in the Amended Complaint, and is thus considered in deciding this motion to dismiss. See Int'l Audiotext Network, Inc. v. AT T, 62 F.3d 69, 72 (2d Cir. 1995) (noting that a court may consider exhibits or documents incorporated by reference in the complaint without converting the motion into one for summary judgment).
"In consideration for the Rate, I, the Photographer, hereby irrevocably grant to Scandia Down, LLC, its affiliates, authorized licensees, authorized users and other nominees and its and their successors and assigns . . ., without restriction, to copyright, publish and use inside or outside the United States for the Usage and during the Term . . . my image and the likeness from photographs and video taken during the Session. . . .
(Shube Decl. Ex. 1.) "In consideration for the Rate," Novajosky granted defendants the right to use the photographs for a 36 month term. (Am. Compl. ¶ 21.) The "Rate," was an agreed license fee of $11,250 plus an additional amount of $2,250 per day for each day the photographer "performed post-production activities" after the photoshoot and included his travel and other related expenses, which was calculated in a separate document. (Am. Compl. ¶ 21.) The plaintiffs claim that the total calculated license fee was either $13,500.00 or $13,708.45. (Am. Compl. ¶¶ 21, 27.)
Novajosky, on or about August 5, 2009, submitted an invoice to the defendants for $13,708.45, reflecting the amount due for the Rate payment. (Am. Compl. ¶ 27.) On August 6, 2009, Powlus selected 93 photographs from the 8,000 photographs taken during the photoshoot, and then delivered them to the defendants to examine. (Am. Compl. ¶ 23.) On August 18, the defendants chose 64 photographs out of the 93 pictures, which Powlus sent to International Color Service for retouching (including nine that were expedited and delivered to defendants on August 21, 2009). (Am. Compl. ¶¶ 23, 24, 25.) The remaining 55 photographs were completed and delivered to the defendants by August 31, 2009. (Am. Compl. ¶¶ 25, 26.) On an unspecified date, defendants paid plaintiffs $9,583.45, which Novajosky accepted "under protest." (Am. Compl. ¶¶ 28, 29.) Plaintiffs have made repeated demands for full payment of the Rate, but have not received any additional payments. (Am. Compl. ¶ 29.) Defendants have featured at least 26 of the plaintiffs' photographs in their 2009/2010 advertising and promotional campaigns. (Am. Compl. ¶ 34.) It is undisputed that plaintiffs own and have registered copyrights with the United States Patent and Trademark Office for the 26 photographs at issue in this lawsuit. (Am. Compl. ¶ 38.) It is also undisputed that defendants published those photos in their 2009/2010 marketing campaigns. (Am. Compl. ¶ 38.)
DISCUSSION
I. Subject Matter Jurisdiction
Federal courts have exclusive jurisdiction over cases arising under the Copyright Act. 28 U.S.C. § 1338. The Second Circuit has adopted the "well pleaded complaint" standard set forth originally in T.B. Harms Co. v. Eliscu, 339 F.2d 823, 828 (2d Cir. 1963). See Bassett v. Mashantucket Pequote Tribe, 204 F.3d 343, 349 (2d Cir. 2000). Under this test, "[w]hen a complaint alleges a claim or seeks a remedy provided by the Copyright Act, federal jurisdiction is properly invoked." Id. at 355 (citingT.B. Harms, 339 F.2d at 828).
Here, the Amended Complaint alleges claims of copyright infringement and seeks a remedy expressly granted by the Copyright Act, "statutory damages in the amount of $30,000.00 per infringement . . . pursuant to 17 U.S.C. § 504(c) of the Copyright Act." (Am. Compl. ¶ 50.) Thus, this Court has subject matter jurisdiction over this case.
II. Failure to State A Claim
Defendants do not dispute that the plaintiffs own valid copyrights for the 26 photographs at issue nor do they dispute that they used the photographs at issue in their 2009/2010 marketing campaign. As the basis for their motion to dismiss they assert that they were granted a license to use the photographs. (Defs. Mem. 4.)
A. Motion to Dismiss Standard
Rule 8(a)(2), Fed.R.Civ.P., requires "a short and plain statement of the claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1964 (2007) (quotingConley v. Gibson, 355 U.S. 41, 47 (1957)) (ellipsis in original). To survive a motion to dismiss under Rule 12(b)(6), a plaintiff must provide the grounds upon which the claims rest, through factual allegations sufficient to raise a right to relief above the speculative level. ATSI Commc'ns Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (quoting Twombly, 127 S. Ct. at 1965). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Achcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). "The plausibility standard . . . asks for more than a sheer possibility that a defendant has acted unlawfully." Id. Legal conclusions and "[t]hreadbare recitals of the elements of a cause of action" do not suffice to state a claim, as "Rule 8 . . . does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions." Id. at 1949-50. The Supreme Court has described the motion to dismiss standard as encompassing a "two-pronged approach" that requires a court first to construe a complaint's allegations as true, while not bound to accept the veracity of a legal conclusion couched as a factual allegation.Id. Second, a court must then consider whether the complaint "states a plausible claim for relief," which is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. Although the Court is limited to facts as stated in the complaint, it may consider exhibits or documents incorporated by reference without converting the motion into one for summary judgment. See Int'l Audiotext Network, Inc. v. AT T, 62 F.3d 69, 72 (2d Cir. 1995).
B. Copyright Infringement
To establish an infringement of a copyright, a plaintiff must show both "(1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original." Feist Publ'ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361 (1991);accord, Lipton v. Nature Co., 71 F.3d 464, 469 (2d Cir. 1995).
Even where these elements are satisfied, the existence of a license to engage in the challenged copying may be raised as a valid defense to an infringement claim. Tasini v. New York Times Co., Inc., 206 F.3d 161, 170-71 (2d Cir. 2000). If the parties dispute the existence of a license, the party claiming the benefit of the purported license has the burden to prove its existence. See id. at 171; SimplexGrinnell LP v. Integrated Sys. Power, Inc., 642 F. Supp. 2d 167, 187 (S.D.N.Y. 2009). In this context, the existence of a license is viewed as an affirmative defense. See Bourne v. Walt Disney Co., 68 F.3d 621, 631 (2d Cir. 1995). This is because "[a] copyright owner who grants a nonexclusive license to use his copyrighted material waives his right to sue the licensee for copyright infringement." Graham v. James, 144 F.3d 229, 236 (2d Cir. 1998).
"Dismissal of a claim for copyright infringement is proper where a contract underlying the suit clearly and unambiguously demonstrates the existence of the defendant's license to exploit the plaintiff's copyrights and where plaintiff has not shown any limitation on that license." Ariel (UK) Limited v. Reuters Group PLC, 2006 WL 3161467, at *5 (S.D.N.Y. Oct. 31, 2006) (citingJasper v. Sony Music Entm't, Inc., 378 F. Supp. 2d 334, 339 (S.D.N.Y. 2005)).
C. The Asserted Grant of a License to Defendants
The defendants argue that the Agreement transferred to them the rights to use the copyrighted photographs in their marketing campaign. (Defs. Mem. 2.) They assert that under the terms of the Agreement, they obtained the rights to the photographs because full payment of the Rate was a term of the Agreement and not a condition precedent to the plaintiffs' duty to perform. (Defs. Mem. 2.) The defendants argue that their payment of $9,583.45, rather than $13,708,45, may have breached the Agreement, but it did not give plaintiffs the right to rescind the Agreement because the breach was not material and the licensing agreement was irrevocable by its terms. (Defs. Mem. 11-14.) In response, plaintiffs make two arguments. First, they argue that full payment of the Rate was a condition precedent that was not satisfied, and therefore the plaintiffs' duty to perform under the contract did not arise and the defendants never received the rights to the photographs. (Pls. Mem. 3.) Second, they assert that the motion to dismiss should be denied to allow them an opportunity to submit parol evidence demonstrating that the license agreement between Novajosky and the defendants never became legally operative because the parties had an oral condition precedent to the effectiveness of the Agreement, and the oral condition precedent was never satisfied. (Pls. Mem. 11, 12.) The plaintiffs contend that "if afforded the opportunity, plaintiffs will submit substantial and credible testimony in support of their contention that payment of the entire amount of the Rate . . . was intended by the parties to be a condition precedent to the grant to defendants of any rights to use the photographs." (Pls. Mem. 13.)
Included in plaintiffs' submissions is an affidavit by Novajosky outlining the reasons for his belief and understanding that full payment of the Rate was to be an express condition precedent to defendants obtaining the copyright license. (Novajosky Aff.) This Court has not considered the affidavit in deciding the defendants' motion to dismiss. See Int'l Audiotext Network. Inc. v. AT T, 62 F.3d 69, 72 (2d Cir. 1995).
State law governs the interpretation of licensing agreements.See Bartsch v. Metro-Goldwyn-Mayer, Inc., 391 F.2d 150, 153 (2d Cir. 1968). The parties assume New York law governs here, so this Court will apply New York law. See Krumme v. WestPoint Stevens Inc., 238 F.3d 133, 138 (2d Cir. 2000) (holding that the implied consent of parties to state law is sufficient to establish choice of law).
1. Condition Precedent to Performance
"The fundamental, neutral precept of contract interpretation is that agreements are construed in accord with the parties' intent." Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569 (2002). "The best evidence of what parties to a written agreement intend is what they say in their writing." Slamow v. Del Col, 79 N.Y.2d 1016, 1018 (1992). "Thus, a written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms." Greenfield, 98 N.Y.2d at 569. "Ambiguity is determined by looking within the four corners of the document, not to outside sources." Riverside South Planning Corp. v. CRP/Extell Riverside, L.P., 13 N.Y.3d 398, 404 (2009). "Extrinsic and parol evidence is not admissible to create an ambiguity in a written agreement which is complete and clear and unambiguous upon its face." Madison Ave. Leasehold, LLC v. Madison Bentley Ass. LLC, 8 N.Y.3d 59, 66 (2006) (quotingSouth Rd. Assoc., LLC v Int'l Bus. Machs. Corp., 739 N.Y.S.2d 835, 838 (2005) (alteration in original). A contract is unambiguous if on its face it is "reasonably susceptible of only one meaning." Greenfield, 98 N.Y.2d at 570. The threshold decision of whether a writing is ambiguous is a matter of law for the court to decide. Innophos, Inc. v. Rhodia, S.A., 852 N.Y.S.2d 820, 823 (2008).
It is also for the court to decide, as a matter of law, whether a condition precedent to performance exists under the terms of a contract. See Rooney v. Slomowtiz, 784 N.Y.S.2d 189, 192 (3d Dep't 2004). "A condition precedent is `an act or event, other than a lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises.'" Oppenheimer Co., Inc. v. Oppenheim, Appel, Dixon Co., 86 N.Y.2d 685, 689 (1995) (quoting Calamari and Perillo,Contracts § 11-2, at 438 (3rd ed.)). "Conditions are not favored under New York law, and in the absence of unambiguous language, a condition will not be read into the agreement." Ginett v. Computer Task Group, Inc., 962 F.2d 1085, 1100 (2d Cir. 1992).See also Graham v. James, 144 F.3d 229, 237 (2d Cir. 1998) (stating that "[g]enerally speaking, New York respects a presumption that terms of a contract are convenants rather than conditions."); Uniguard Security Ins. Co. Inc. v. North River Ins. Co., 79 N.Y.2d 576, 581 (1992) (stating that an established rule of contract law in New York is that a contractual duty ordinarily will not be construed as a condition precedent absent clear language showing that the parties intended to make it a condition). Unambiguous language indicating a condition include the terms "on condition that," "provided that," "if," "unless and until," or "null and void." See Su Mei, Inc. v. Kudo, 755 N.Y.S.2d 481, 483 (3rd Dep't 2003); Restatements (Second) of Contracts § 226 cmt. a. "For such a condition to exist it must be apparent from the contract itself that this was the intention of the parties." Torres v. D'Alesso, 910 N.Y.S.2d 1, 10 (1st Dep't 2010) (quoting Manning v. Michaels, 540 N.Y.S.2d 583, 584 (3rd Dep't 1989) (alterations in original)).
Here, the Agreement is a two-page document signed by both parties. It provides that "[i]n consideration for the Rate, I, the Photographer hereby irrevocably grant" a right to use the photographs under certain circumstances during the term of the Agreement. It identifies the permissible uses of the photographs, including the frequency of national print advertisements, and the term of the agreement, which is 36 months. It addresses the absence of a right of the photographer to inspect or approve the final use of the photographs. It speaks to such exotic contingencies as the inclusion of the photographer "as a principal, extra or voice over" on any film or video. It includes representations that the photographer is over 18, self-employed, and has no prior indictments or convictions. While the Agreement lacks a merger or integration clause, a review of the form and the content of the Agreement leads to the conclusion that it is an integrated agreement intended by the parties to contain a final expression of their agreement. See Torres v. D'Alesso, 910 N.Y.S.2d 1, 21 n. 9 (1st Dep't 2010) (McGuire, J., dissenting) (quoting Restatements, Contracts, § 228) (stating that "[a]n agreement is integrated where the parties thereto adopt a writing or writings as the final and complete expression of the agreement.")
There is no unambiguous contract language indicating that payment of the Rate was a condition precedent. The language "[i]n consideration for the Rate" is a mere recital supporting the existence of consideration for the plaintiff's obligation to perform. No court applying New York law has ever construed the commonly used phrase "[i]n consideration for" as indicating a condition precedent. If the parties intended to make full payment of the Rate a condition precedent to the defendants' duty to perform under the contract, they could have expressly stated that the defendants would not become licensees until full payment was received or could have used unambiguous terms to indicate their intention to make full payment a condition precedent. Cf. Tangorre v. Mako's Inc., 2003 WL 470577, at *7 (S.D.N.Y. Jan. 6, 2003) (applying New York law and interpreting full payment under a licensing agreement as a condition precedent where the contract stated that the licensor "shall grant to [the licensee]" the right to use the photographs "[u]pon receipt of payment in full"). There are no other provisions or terms in the Agreement indicating that a condition precedent was intended, such as a provision delineating the consequences if the defendants failed to pay the full Rate or a notation that the license would expire or cease to exist if the defendants did not pay by a certain date. Cf. Irwin v. Am. Interactive Media, Inc., 1994 WL 394979, at *4 (C.D.Cal. Apr. 14, 1994) (full payment not a condition precedent to an implied license, especially where the "[p]laintiff never told [d]efendants that failure to pay would be viewed as copyright infringement"). As a matter of law, the Agreement contains no condition precedent to plaintiff's performance.
Because this Court construes payment of the Rate to be a promise to pay and plaintiffs have alleged that defendants breached this provision, the Court must next determine whether the alleged breach was so material as to give rise to a right to rescind the Agreement. See Schoenberg v. Shapolsky Publishers, 971 F.2d 926, 932 (2d Cir. 1992) (noting that "if the complaint merely alleges a breach of a covenant in the agreement licensing or assigning the copyright, then the court must next determine whether the breach is so material as to create a right of rescission in the grantor.") "A material breach of a covenant [in a licensing agreement] will allow the licensor to rescind the license and hold the licensee liable for infringement for uses of the work [after the rescission]." Graham v. James, 144 F.3d 229, 237 (2d Cir. 1998). A breach can justify rescission of a contract if the breach is "so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract." Nolan v. Sam Fox Publ'g Co., 499 F.2d 1394, 1399 (2d. Cir. 1974) (payment of 26% of royalties due under a licensing agreement not a material breach). "New York law does not presume the rescission . . . of a contract and the party asserting rescission . . . has the burden of proving it." Graham, 144 F.3d at 238 (citing Armour Co. v. Celic, 294 F.2d 432, 435-36 (2d. Cir. 1961)). Where the contract lacks an automatic rescission provision, rescission requires an affirmative act. Graham, 144 F.3d at 237.
Plaintiffs allege that they received $9,583.45 of the approximately $13,708.45 due under the Agreement. (Am. Compl. ¶¶ 27, 28.) Although defendants did not pay the full amount the parties agreed upon, they paid approximately 70% of the amount due under the Agreement. This is a substantial portion of the Rate. In addition, the terms of the Agreement recites that "I, the Photographer, hereby irrevocably grant" which is language inconsistent with an intended right to rescind for non-payment. (Novajosky Ex. 1.) Most importantly, the plaintiffs do not allege in the Amended Complaint that they engaged in an affirmative act to rescind the Agreement and the Agreement does not contain an automatic rescission provision. (Novajosky Ex. 1.) Plaintiffs cannot lie in wait as defendants proceed with an advertising campaign and then after-the-fact assert that they unilaterally rescinded the Agreement prior to use of the photographs, thereby entitling them to millions in damages.
Thus, under the terms of the Agreement, defendants became licensees for 36 months following first commercial use and therefore did not infringe plaintiffs' copyright during that 36 month period. See United States Naval Inst. V. Charter Commc'ns, Inc., 936 F.2d 692, 695 (2d Cir. 1991) (stating that an exclusive licensee cannot be liable for copyright infringement, although the licensor may have a breach of contract claim); Graham v. James, 144 F.3d 229, 236 (2d Cir. 1998) (extending concept to nonexclusive licenses). Because the Term does not expire until August 2012, the defendants remain licensees and have a valid defense to this copyright infringement action, provided the Agreement is legally operative.
2. Condition Precedent to the Agreement
Plaintiffs also argue that the Agreement never became legally operative because an unsatisfied oral condition precedent prevented the Agreement from becoming legally operative. (Pls. Mem. 11, 12.) The existence of a condition precedent, "which must occur before a party is obliged to perform a promise made pursuant to an existing contract," must be "distinguished conceptually from a condition precedent to the formation or existence of the contract itself." Oppenheimer Co., Inc. v. Oppenheim, Appel, Dixon Co., 86 N.Y.2d 685, 737 (1995). "In the latter situation, no contract arises `unless and until the condition occurs.'" Id. (citing Calamari and Perillo, Contracts § 11-5, at 440 (3rd ed.)). In this situation, "[p]arol testimony is admissible to prove a condition precedent to the legal effectiveness of a written agreement if the condition does not contradict the express terms of such written agreement. Hicks v. Bush, 10 N.Y.2d 488, 491 (1962) (internal citations omitted). The oral condition is enforceable if it "may stand side by side" with the written agreement. Id. at 492.
Here, the existence of an oral condition making the Agreement contingent upon full payment of the Rate would not expressly contradict the written agreement and the Agreement does not contain a merger clause indicating that the writing merges all prior agreements or understandings. Thus, the language of the Agreement is susceptible to the existence of an oral condition precedent. However, this is a close case in which it is not altogether clear that the plaintiffs have adequately alleged an oral condition precedent to the written agreement becoming effective. The severe penalties for perjury serve as a deterrent to manufactured claims of an oral, bilateral understanding. I will allow limited discovery between the date of this Order and March 4, 2011 on the existencevel non of a condition precedent. I will conduct a conference on March 11, 2011 at 2:30 p.m.
The Court reserves the right to revisit at the close of discovery whether evidence of an oral condition precedent to the effectiveness of the Agreement is admissible to show that the written licensing agreement never became legally operative. Allowing such evidence could undermine the need for certainty and finality that the Copyright Act demands by requiring the transfer of exclusive licenses to be in writing. See 17 U.S.C. § 204(a) (requiring that a transfer of copyright ownership must be in writing); Foad Consulting Group, Inc. v. Musil Govan Azzalino, 270 F.3d 821, 834 (9th Cir. 1999) (Kozinski, J., concurring) (questioning whether applying California's broad "parol evidence rule is consistent with federal copyright laws, which are designed to ensure certainty and predictability in the transfer of copyright.") It should be noted that the First Department decided Torres v. D'Alesso, 910 N.Y.S.2d 1, on October 7, 2010. In Torres, the court refused to allow a purchaser of real estate to avoid a fully executed written real estate sales contract based on a claimed oral condition precedent to the effectiveness of the written contract. Torres, 910 N.Y.S.2d at 11. AlthoughTorres involved a real estate contract that contained a merger clause and the alleged oral condition precedent contradicted terms in the written agreement, it raises issues potentially applicable to the facts of this case.
CONCLUSION
For the foregoing reasons, defendants' motion to dismiss (Docket # 11) is DENIED.
SO ORDERED.
Dated: New York, New York
January 10, 2011