Opinion ID: 2976049
Heading Depth: 3
Heading Rank: 3

Heading: Internet Downloads

Text: Popovich appeals the district court’s decision on summary judgment finding that the 1998 Agreement unambiguously did not cover internet downloads. The district court held that the language “manufactured by Sony Music after September 1, 1998” precludes items not “manufactured” by Sony. In the words of the district court, “while Sony ‘manufactures’ albums, CDs, and cassettes, asserting that Sony ‘manufactures’ Internet downloads or streaming audio requires a liberal interpretation of ‘manufacture.’ Such an interpretation is simply too great a stretch for this court to conclude that there is ambiguity in the language.” Nos. 06-3463/3464 Popovich v. Sony Music Entertainment, Inc. Page 8 Popovich contends that the “all forms and configurations” language was intended to cover future music formats such as internet downloads, and the “manufactured by Sony Music after September 1, 1998” language merely provides Sony a grace period to comply with its obligations. The relevant question for this Court is whether the sentence “all forms and configurations . . . manufactured by Sony” includes internet downloads. Neither party has cited to, nor have we been able to find, a case holding that internet downloads may be “manufactured.” As the district court noted, had the parties included the words “distributed by,” the agreement would have lent itself to the interpretation that internet downloads were meant to be included in the logo obligation. As a result, we do not believe the district court erred in its holding that it is an unreasonable interpretation of the language of the agreement to conclude it covers internet downloads. Popovich raises the doctrine of “new use” in his appeal. According to Popovich, New York courts have held that where one party wants contractual language governing a work’s distribution to be broadly construed to govern use in a new medium, and the other party attempts to limit the application of the agreement, the burden of excluding the right to the new use will rest with the party attempting to limit the application, in his case, Sony. The Second Circuit applied the new-use doctrine in Boosey & Hawkes Music Publishers, Ltd. v. Walt Disney Co., 145 F.3d 481, 486-87 (2d Cir. 1998). In doing so, the court stated that the words of the contract govern, and a court should not favor one party over the other. “If the contract is more reasonably read to convey one meaning, the party benefitted by that reading should be able to rely on it; the party seeking exception or deviation from the meaning reasonably conveyed by the words of the contract should bear the burden of negotiating for language that would express the limitation or deviation. This principle favors neither licensors nor licensees. It follows simply from the words of the contract.” Id. at 487. The New York Court of Appeals affirmed the Second Circuit’s reasoning in Greenfield v. Philles Records, Inc., 780 N.E. 2d 166, 171-72 (N.Y. 2002). The New York court held that the reasonable interpretation of the contract governs. Id. at 172. It is important to remember that the new-use doctrine has only been applied in the licensing arena and has not been applied to the factual situation in the present case. Regardless, taking into account the new-use doctrine’s requirement that the language of the contract must be more reasonably read to include the new-use being proposed — here, internet downloads — the language “all forms and configurations . . . manufactured by Sony” is not more reasonably read to include internet downloads than to exclude internet downloads. Based on the above, the district court’s decision that the 1998 Agreement unambiguously does not include internet downloads should be affirmed. C. Was the district court correct in allowing a “cost of completion” damages theory? Sony argues that the district court erred as a matter of law in allowing “cost of completion” damages to be argued at trial. According to Sony, New York does not allow such damages under the circumstances of this case. Sony is wrong. In New York, the measure of damages in a breach of contract claim is typically the “value of the promised performance.” Schonfeld v. Hilliard, 218 F.3d 164, 175 (2d Cir. 2000) (applying New York law). “When a defendant’s breach of contract deprives a plaintiff of an asset, the courts look to compensate the plaintiff for the market value of the asset in contradistinction to any peculiar value the object in question may have had to the owner.” Id. at 178 (internal quotation marks and citations omitted). As the Second Circuit noted in Schonfeld, if the asset has a readily identifiable market, it is much easier to determine the market value compared to an asset with no market. Id. However, “an asset does not lose its value simply because no such market exists.” Id. Nos. 06-3463/3464 Popovich v. Sony Music Entertainment, Inc. Page 9 Where, as in this case, the asset is intangible — Popovich’s right to have Sony affix his logo to Meat Loaf albums — New York courts have adopted the hypothetical market standard in order to determine the asset’s value. Id. (citing Nestle Holdings, Inc. v. Commissioner, 152 F.3d 83, 88 (2d Cir. 1998) (trademark); American Soc'y of Composers, Authors and Publishers v. Showtime/The Movie Channel, Inc., 912 F.2d 563, 569 (2d Cir.1990) (music license); W.T. Grant Co. v. Srogi, 52 420 N.E.2d 953 (N.Y. 1981)). The Supreme Court defined the hypothetical market standard in United States v. Cartwright: “[t]he fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.” 411 U.S. 546, 551 (1973). Accordingly, New York courts have allowed expert testimony on the hypothetical market value of an intangible asset, and evidence of sales data of comparable assets. Schonfeld, 218 F.3d at 178 (citing numerous New York cases). The district court in this case properly allowed Popovich to pursue a damages theory consistent with the above law, namely, how much it would cost Popovich to obtain the logo rights elsewhere. Sony also argues on appeal that Popovich’s evidence on damages was insufficient and attacks Popovich’s expert, Ronald DiMattia. Sony argues that DiMattia was unqualified to testify as an expert, and his model of damages was inapplicable to the present case. This court reviews a district court’s decision concerning expert testimony for abuse of discretion. Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 152-53 (1999). Prior to trial, the district court conducted an evidentiary hearing in order to determine whether the expert testimony offered by both parties was admissible under Daubert. The district court ultimately allowed both DiMattia and Sony’s expert, Jill Voigt, to testify about the market value of comparable intangible assets. Without rehashing each finding of the district court, it is apparent the district court thoroughly examined DiMattia’s credentials and experience, and concluded that despite having minimal experience in evaluating a contract or logo right, “DiMattia’s extensive experience in business valuation, including valuation of business units and business assets, [was] sufficient to qualify him as an expert on the value of the contract right in this case.” This determination was not error. DiMattia offered evidence on the market for custom CDs. Music companies sell custom CDs to corporate customers, which bear the corporation’s name and logo and typically contain music selected by the corporation. Voigt offered evidence on the value of license agreements for cobranded credit cards. The district court found that both expert’s testimony provided a comparable market and was a reasonable basis for the assessment of damages. Again, the district court did not abuse its discretion in allowing both sides to present this expert testimony. In evaluating the sufficiency of the evidence, we will not set aside a verdict “if there is any credible evidence to support [the] verdict.” Farber v. Massillon Bd. of Ed., 917 F.2d 1391, 1395 (6th Cir. 1990). A review of DiMattia’s testimony reveals evidence sufficient to support the jury’s award. DiMattia estimated damages at $3 per CD. While there was some dispute as to the number of CDs without the logo, the high estimate would have resulted in damages over $30 million using DiMattia’s per CD damages estimate. Voigt testified that damages would not exceed $105,000. The jury’s award of $5.6 million was substantially below DiMattia’s estimate and above Voigt’s estimate. Under New York law, “[t]he assessment of damages is principally a factual determination to be made by the jury, and is accorded great deference unless it deviates materially from what would be considered reasonable compensation.” Johnson v. Grant, 3 A.D.3d 720, 722 (N.Y. App. Div. 2004). It cannot be said that the jury’s determination deviated materially from the evidence presented at trial, and thus should not be disturbed. Nos. 06-3463/3464 Popovich v. Sony Music Entertainment, Inc. Page 10 D. Does the geographic limitations clause of the 1977 Agreement unambiguously apply to the 1998 Settlement Agreement’s logo obligation? The district court ruled during discovery that the geographic limitations clause contained in paragraph 7.05 of the 1977 Agreement applied to all of Sony’s logo obligations under both the 1977 and 1998 Agreements. This ruling begs the question why the district court determined that one clause of paragraph 7.05 — the remedies limitation — does not apply to any new logo obligations under the 1998 Agreement, while another clause of paragraph 7.05 — the geographic limitation — applies to all logo obligations under the 1998 Agreement. More perplexing is what Popovich is seeking by appealing this issue. Nowhere does Popovich identify what relief he is seeking, and it would be an interesting strategic move to request a new trial after winning a $5.6 million jury verdict. Nevertheless, we review the district court’s decisions on discovery matters for an abuse of discretion. Green v. Nevers, 196 F.3d 627, 632 (6th Cir. 1999) (“Rulings concerning the scope of discovery are generally reviewed for abuse of discretion.”). “An abuse of discretion occurs when the district court relies on clearly erroneous findings of fact, . . . improperly applies the law, . . . or . . . employs an erroneous legal standard. No error in the admission or exclusion of evidence is ground for reversal unless refusal to take such action appears to the Court to be inconsistent with substantial justice.” Surles ex rel. Johnson v. Greyhound Lines, Inc., 474 F.3d 288, 296 (6th Cir. 2007) (internal citations and quotation marks omitted). The question before us is whether the district court abused its discretion when it ruled that discovery would be limited to the sale of Meat Loaf albums in the countries delineated in the geography limitation clause of paragraph 7.05 of the 1977 Agreement. Reviewing the district court’s early discovery decision in light of its later determination on summary judgment does reveal an inconsistency. Paragraph 7.05 of the 1977 Agreement provides the following: CBS agrees that with respect to phonograph records comprised exclusively of an Artist’s performances recorded hereunder and released during the term hereof, it will accord you a standard production credit in any full page trade advertisement relating solely to such records placed by CBS in the United States and on labels of disc albums and singles, and, to the extent that (i) space shall reasonably permit, and (ii) CBS shall afford such credit to the majority of CBS’ associated labels, the labels of tape Albums, and on jackets of disc Albums in the United States, Canada, the United Kingdom, France, Germany, Italy, Spain, Japan and Australia, and such labels and jackets shall contain your distinctive trademark or logo, as such trademark or logo is approved by CBS (the “Mark”); provided however, that the size of such Mark and the particular area on such label or jacket or advertisement onto which CBS places such Mark shall be determined solely by CBS. Popovich argues that this geographic limitation applies only to the logo obligations on labels of tape Albums and jackets of disc albums, but not the labels of disc albums and singles, which are delineated earlier in paragraph 7.05. He bases this argument on his reading of the 1982 Agreement, which he says simply rehashes the 1977 Agreement, but is more helpful because it breaks out paragraph 7.05 into subsections. We find this argument misleading, as paragraph 7.05 in the 1982 Agreement appears to substantively change the 1977 Agreement, and is not simply a carbon copy. Sony argues that not only is the 1977 Agreement controlling, it is unambiguous that geographic limitation applies to all of Sony’s logo obligations. Regardless whether paragraph 7.05 is unambiguous with regard to Sony’s logo obligations under the 1977 Agreement, using the district court’s reasoning on summary judgment, it is at least Nos. 06-3463/3464 Popovich v. Sony Music Entertainment, Inc. Page 11 ambiguous as to whether paragraph 7.05’s geographic limitation applies to any new logo obligations contained in the 1998 Agreement. Accordingly, we reverse the district court’s decision restricting discovery to the geographic limitation contained in the 1977 Agreement. On remand, we instruct the district court to determine the limited issue of whether the geographic limitation applied to new logo obligations created by the 1998 Agreement in light of its summary judgment rulings. This preserves the jury’s verdict concerning Sony’s obligation in the eight countries delineated in the geographic restriction, but allows Popovich to pursue damages for any possible breach by Sony outside of those eight countries. E. Did the district court err in denying prejudgment interest to Popovich? Popovich filed a post-trial motion seeking both pre-judgment and post-judgment interest at the New York statutory rate of nine percent. The district court denied any pre-judgment interest. Popovich appeals that ruling. Because the district court’s decision denying Popovich’s request for pre-judgment interest is a question of law, see Grobe v. Kramer, 33 N.Y.S.2d 901, 904 (N.Y. Sup. 1942), this court’s review is de novo. Prejudgment interest is recoverable as of right under New York’s prejudgment interest statute, New York C.P.L.R. § 5001(a). See Hilord Chem. Corp. v. Ricoh Elec., Inc., 875 F.2d 32, 39 (2d Cir. 1989). “However, New York law also provides that where there is a possibility that the jury award already allowed interest, no further prejudgment interest can be recovered on the verdict.” Trademark Research Corp. v. Maxwell Online, Inc., 995 F.2d 326, 342 (2d Cir. 1993) (citing Men's World Outlet, Inc. v. Estate of Steinberg, 101 A.D.2d 854, 855, (N.Y. App. Div. 1984) (reversing grant of statutory prejudgment interest because of possibility, raised by trial court's jury charge as to interest, that the jury already allowed interest). The district court, in its order denying Popovich’s post-trial motion for pre-judgment interest, reasoned that the jury award adequately compensated Popovich. This was based on the fact that the damages awarded were based on estimates of current, not historical, prices, and that the jury was instructed to place Popovich in as good a position as he would have been had Sony performed. To award Popovich over $3 million in interest on top of the over $5 million in damages would be a windfall and a penalty, according to the district court, “and would put [Popovich] in a better position than [he] would have been had the contract been fully performed.” Popovich argues that New York C.P.L.R. § 5001 is mandatory, and requires a court to award pre-judgment interest in a breach of contract case such as this. Popovich further posits that the cases relied on by the district court are outliers, and that the majority of New York courts have found section 5001 mandatory and automatically awarded pre-judgment interest. The district court relied on Kassis v. Teachers’ Ins. and Annuity Assn., 13 A.D.3d 165, 16566 (N.Y. App. Div. 2004), and Bamira v. Greenberg, 295 A.D.2d 206, 207 (N.Y. App. Div. 2002). Both of those decisions denied pre-judgment interest because both juries’ damages awards were based on present value, rather than the value at the time of breach and the jury instructions were clear that the plaintiff should be made whole by putting him in the same position he would have been had defendant complied with his contractual obligations. Both decisions held that to award plaintiffs pre-judgment interest in these circumstances would constitute an unwarranted windfall. We find the district court’s decision persuasive. Had the estimates of damages at trial been calculated from the date of each of Sony’s alleged breaches, pre-judgment interest from those dates would have been warranted. However, the estimates were based on present value estimates of damages, which presumably have risen with inflation over time. See Bamira, 295 A.D.2d at 207. To award additional interest on top of such an award would amount to a windfall to Popovich and a penalty to Sony. Additionally, instead of developing separate damage figures relative to various dates on which logos were omitted, Popovich completely combined the information in a way that Nos. 06-3463/3464 Popovich v. Sony Music Entertainment, Inc. Page 12 would make calculating pre-judgment interest impossible. The district court’s conclusion, based on the jury instructions, the testimony at trial, and the methodology of the damages experts, that Popovich was fully compensated, was not in error.