Court Opinion

ID: 6684
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:20:06+00
Date Added: 2024-06-11T13:30:41.073201
License: Public Domain

United States Court of Appeals,

                          Fifth Circuit.

                           No. 93-1829.

        John BLOOM and Jim Atkinson, Plaintiffs-Appellants,

                                v.

    HEARST ENTERTAINMENT, INC., et al., Defendants-Appellees.

                          Sept. 29, 1994.

Appeal from the United States District Court for the Northern
District of Texas.

Before GOLDBERG, KING and WIENER, Circuit Judges.

     GOLDBERG, Circuit Judge:

     John Bloom and Jim Atkinson ("appellants") appeal from a

decision of the Northern District of Texas in a contract dispute.

Appellants brought suit in Texas State Court against appellees,

claiming that they possessed the home video rights to a motion

picture based on a book written by them.    The appellees removed the

case to the federal district court.        The District Court ruled

against the appellants, issuing findings of fact and conclusions of

law that held the appellants did convey the home video rights in

controversy here to the appellees.    The appellants appealed the

District Court's ruling to this court.     We affirm.

                            BACKGROUND

     In 1981, the appellants wrote a book entitled Evidence of

Love.   The book was an account of a well publicized axe murder of

a housewife in Wylie, Texas in 1980.        On March 22, 1981, the

appellants entered into an agreement with Texas Monthly Press, Inc.

("TMP") to publish the manuscript.   As part of this agreement, the

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appellants also granted TMP broad powers with respect to Evidence

of Love, including:

      The Authors hereby grant and assign solely and exclusively to
      the Publisher throughout the world during the full term of
      copyright and all renewals thereof on the terms set out in the
      Agreement, the book and volume publishing right in the English
      language throughout the world in [Evidence of Love ] along
      with the following rights; abridgement, syndication, radio
      broadcasting, television, mechanical recording and rendition,
      projection, Braille, microfilm, translation, dramatic, and
      motion pictures;     ancillary commercial promotion rights,
      together with the right to grant licenses for the exercise of
      and/or to dispose of any or all of the rights granted.

The District Court found that by this agreement (hereinafter

referred to as the "Publishing Contract") the appellants granted

all the rights they had in Evidence of Love to TMP, including the

home video rights.

      Evidence of Love was published in book form by TMP in 1984,

and pursuant to its agreement with the appellants, TMP engaged the

services of Triad Artists, Inc. ("Triad") to sell the movie rights.

In   June   1987,    Triad    entered       into   negotiations    with    Hearst

Entertainment, Inc. and Phoenix Entertainment Group, which is King

Phoenix     Entertainment's      predecessor-in-interest           (hereinafter

referred    to   collectively    as     "Phoenix").       The     two   principal

negotiators were Caitlin Buchman, representing Triad, and Marvin

Katz, representing Phoenix.

      Buchman and Katz reached an agreement on the movie rights

which is the focus of the present controversy.             This agreement was

an option contract consisting of eleven sections. Section 1 of the

contract states, in relevant part:

      [Phoenix]     shall    be granted, upon          execution hereof, an
      exclusive     three    month free option         to acquire exclusive

                                        2
      worldwide motion picture and television rights in and to
      [Evidence of Love ]. (emphasis provided).

The remainder of this clause ("granting clause") details how the

option was to be extended and the option price.               In section 6 of

the contract ("reservation clause") Triad reserved certain rights

on TMP's behalf.          Specifically, the contract stated that TMP

reserved    all   rights   not   expressly    granted,    and   reserved   the

publication, live stage, and radio rights.           Finally, section 11 of

the contract provided that all disputes arising under the contract

would be settled in accordance with New York law.

      The appellants and their agent, Vickie Eisenberg, were aware

of   the   negotiations     between   TMP   and    Phoenix.     Although   the

appellants were not parties to the negotiations between TMP and

Phoenix,    drafts   of    the   contract   were   made   available   to   the

appellants, and they expressed no reservations concerning the

agreement.    In November 1989, Phoenix and TMP reached an agreement

on an option contract to buy the movie rights to Evidence of Love.

Phoenix exercised its option to the movie rights for Evidence of

Love in January 1990.       By exercising its option with TMP, Phoenix

was vested of all the rights under the option contract (hereinafter

referred to as the "Movie Rights Contract").

      The same month that Phoenix and TMP executed the Movie Rights

Contract, the appellant's attorney sent TMP a letter stating that

the appellants were displeased with the terms of the sale of the

movie rights to Evidence of Love.           The appellants were upset that

they were not given a creative role in the making of the motion

picture, were not chosen to write the screenplay, and did not have

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a voice in choosing the director. The appellants threatened to sue

TMP for the alleged mishandling of the agreement with Phoenix, and

demanded that TMP reconvey to the appellants whatever rights TMP

retained in Evidence of Love under the Movie Rights Contract.          In

response to these demands, TMP sued the appellants in Texas State

Court for a declaratory judgment regarding the parties rights under

the Publishing Contract between the appellants and TMP. Appellants

and TMP settled this suit in February 1990, with TMP assigning

whatever rights it retained in Evidence of Love under the Movie

Rights Contract to the appellants.         Under this settlement the

appellants stepped into TMP's shoes with regard to TMP's rights in

Evidence of Love and its relationship to Phoenix.

     Meanwhile, Phoenix entered into an agreement with the CBS

Television Network to air the movie adaptation of Evidence of Love,

entitled "Killing in a Small Town."      The program aired on May 22,

1990.    In June 1990, the appellants read a newspaper article

stating that "Killing in a Small Town" was going to be theatrically

released abroad that summer.      In reaction to this article, the

appellants contacted Phoenix, seeking the additional funds they

would be entitled to if the movie were to be released abroad.

Phoenix claimed that the article was mistaken and that there was to

be no foreign release, but rather that Phoenix had licensed the

motion   picture   to   international   home   video   distributors   and

television broadcasters.     The appellants informed Phoenix of their

belief that the Movie Rights Contract did not grant Phoenix any

rights to the home video of Evidence of Love.          Phoenix disagreed

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with the appellants and asserted that it did have home video rights

under the Movie Rights Contract. A few months later the appellants

instituted an action against Phoenix in Texas State Court. Phoenix

promptly removed the matter to the federal district court, and the

appellants' appeal from the District Court's verdict is before us

today.

                              DISCUSSION

       The appellants' first assertion is that the District Court

erred in holding that the granting clause of the Movie Rights

Contract was ambiguous.      They argue that the language of the

granting clause is clear: that "exclusive worldwide motion picture

and television rights" means precisely what it says, and since

there is no mention of home video rights, then those rights were

obviously not granted.      Conversely, Phoenix contends that the

granting clause is ambiguous in regard to whether or not it conveys

the video rights.

       Determining whether a contract is ambiguous is a question of

law.     Walk-In Medical Centers, Inc. v. Breuer Capital Corp., 818
F.2d 260, 263 (2nd Cir.1987);   Curry Road Ltd. v. K Mart Corp., 893
F.2d 509, 511 (2nd Cir.1990).         A term is ambiguous if it is

susceptible to "more than one meaning when viewed objectively by a

reasonably intelligent person who has examined the context of the

entire integrated agreement and who is cognizant of the customs,

practices, usages and terminology as generally understood in the

particular trade or business."     Walk-In Medical, 818 F.2d at 263

(quoting Eskimo Pie Corp. v. Whitelawn Dairies, Inc., 284 F. Supp.
5
987, 994 (S.D.N.Y.1968)).          Also, a determination of ambiguity

should be made solely in reference to the language of the contract;

extrinsic evidence should only be admitted after the contract is

found to be ambiguous.          Curry Road Ltd., 893 F.2d at 511.          The

Uniform Commercial Code, as adopted in New York, makes an exception

to the exclusion of extrinsic evidence for the purposes of proving

that a contract term is not ambiguous in light of usage of trade,

course of dealing or course of performance.            N.Y.U.C.C. § 2-202,

Official Comment 1. Generally, determining whether a contract term

is ambiguous is a question of law and would call for a de novo

review of the District Court's determination.            Paragon Resources,

Inc.   v.   Nat.   Fuel   Gas   Distribution,    695 F.2d 991,   995   (5th

Cir.1983) (applying New York law).              However, it is not clear

whether the admission of extrinsic evidence of usage of trade to

determine ambiguity in a contract makes it a factual determination,

a mixed question of law and fact, or whether it remains a purely

legal question. We shall wrangle with this question further below,

but for now it will suffice to say that we agree with the District

Court in holding that the granting clause in question is ambiguous.

       In order to find that a contract is ambiguous, in whole or in

part, we must believe that it can be construed to mean two

different things. The appellant's assertion that "worldwide motion

picture and television rights" excludes video rights is arguably a

reasonable construction of the clause.             Appellants argue that

"motion pictures" could refer exclusively to movies made for

theatrical release, and "television" could just mean made-for-TV

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movies, and never the "twain shall meet.                        However, Phoenix's

contention that the granting clause does include video rights is

also a reasonable construction.          At its most basic level, what is

a video, if not a motion picture displayed on a television set?

This observation is also supported by the precise definitions of

the relevant terms.       Webster's Ninth New Collegiate Dictionary

defines video as follows:          "a recording of a motion picture or

television   program     for   playing           through   a     television     set."

(emphasis provided). It is not unreasonable to conclude that video

rights lie at the intersection of motion picture and television

rights, and hence, a grant of motion picture and television rights

could include video rights as well.

       The appellants argue that the industry custom and usage of

the   contract   terms   should,    as       a   matter    of    law,    control   our

determination of what is ambiguous.                  See, Personal Preference

Video, Inc. v. Home Box Office, Inc., 986 F.2d 110, 114 (5th

Cir.1993) (applying New York law).               We agree that industry custom

and usage is a determinative factor in discovering whether a

contract term is ambiguous.        However, the appellants argue further

that given the importance of evidence of industry custom and usage,

the District Court made a reversible error by discounting the

testimony of the appellant's expert, Paul Almond.                       The issue the

appellants pose is simply one of what standard of review to apply

to a lower court's determination that a contract term is ambiguous

after considering evidence of usage of trade.                   Generally, whether

a contract is ambiguous is a question of law, and if it is

                                         7
ambiguous and extrinsic evidence is allowed, then the determination

becomes a factual inquiry.             Each particular inquiry has its own,

well   defined,     standard      of   review.       However,     where    extrinsic

evidence of industry custom and usage is admitted to determine

whether a contract term is ambiguous, it is not clear what the

standard of review should be.

       In Paragon Resources, supra, the Fifth Circuit was confronted

with the conundrum of what standard of review to apply to a lower

court's determination of whether a contract was ambiguous in light

of industry custom.        In writing for the court, Judge Higginbotham

clarified the issue in a case such as the one before us today:

            The U.C.C. thus adds a third level to a traditional
       two-level inquiry.    Instead of asking, "Were the contract
       terms ambiguous" and then, "If they were ambiguous what do
       they mean in light of extrinsic evidence" the Code poses three
       inquiries:

            1. Were the express contract terms ambiguous?

            2. If not, are they ambiguous after considering evidence
            of course of dealing, usage of trade, and course of
            performance?

            3. If the express contract terms by themselves are
            ambiguous, or if the terms are ambiguous when course of
            dealing, usage of trade, and course of performance are
            considered (that is, if the answer to either of the first
            two questions is yes), what is the meaning of the
            contract in light of all extrinsic evidence?

            The first inquiry presents a question of law. The third
       inquiry presents a question of fact. The thorny problem is
       classifying the second inquiry as one of law or fact or both.

Id. at 996 (emphasis in original).               The Paragon court did not have

to resolve this "thorny" issue because the court found that, as a

matter of    law,    the   language       was    ambiguous   without       resort   to

evidence of    custom,      and    thus    the    lower   court    judge    properly

                                          8
considered all pertinent forms of extrinsic evidence. 695 F.2d at

996.

       In another Fifth Circuit case applying New York law, Personal

Preference, supra, the court resolved the standard of review issue

by announcing that its decision would have been the same under both

the de novo and clearly erroneous standards of review.              In this

case,    the    trial   court   had   to   determine   whether    the   words

"closed-circuit television" rights were ambiguous. The trial court

answered in the affirmative and allowed extrinsic evidence of trade

usage of the words to be presented to the jury.          The jury returned

a verdict for the plaintiff and on appeal the Fifth Circuit

reversed.      In doing so the court first held, under de novo review,

that the term "closed-circuit television" was not ambiguous. 986
F.2d at 114.      Then the court argued alternatively that, "[t]o the

extent that the industry meaning of the term closed circuit might

be considered a question of fact under New York law, we note that

the overwhelming evidence demonstrates as a matter of law that, in

the boxing industry, closed circuit refers to a type of venue, not

the method of transmitting the television signal."          Id.    (emphasis

in original).

        Because we find that the Movie Rights Contract is ambiguous

as a matter of law, in regard to the disposition of video rights,

we shall follow the course taken in Paragon.              We have already

explained that the vagaries of the definitions of television and

motion picture rights, in this era of multi-media, can embody the

idea of video rights based solely on the lexicographical meaning of

                                       9
the words involved.       Semantics aside, though, there is other

evidence of the ambiguity of the granting clause when we consider

the entire agreement represented in the Movie Rights Contract.

      In addition to the overlap in meaning of some of its key

terms, the Movie Rights Contract is also ambiguous because, under

the circumstances, it is inconsistent to retain video rights when

motion picture rights are being sold.             There is nothing to be

gained by the reservation of video rights when a video cannot be

produced without creating a motion picture—a right the appellants

concededly do not have here.        It is possible that TMP (and the

appellants as TMP's successors-in-interest) could have wanted to

retain home video rights for the purposes of preventing the motion

picture and television market from being diluted.            Yet that would

be a curious result in light of the fact that, in the very

agreement by which TMP retained video rights, it divested itself of

any interest in the motion picture and television rights.             In any

event, a reservation of home video rights should certainly have

been explicitly reserved—if that were the intent—and should have

been expressly granted—if that were the intent—and therein lies the

ambiguity.

      Having properly held that the granting clause of the contract

was   ambiguous,   the   District   Judge   was    correct    in   admitting

extrinsic evidence to determine the intent of the parties.               The

proper standard of review of the District Court's findings is

clearly erroneous. Paragon Resources, 695 F.2d at 996; Eskimo Pie

Corp., 284 F. Supp. at 991-95.       The District Judge reviewed a good

                                    10
deal of extrinsic evidence, most of which was damaging to the

appellants.     Perhaps most significant was the testimony of the

persons   negotiating      the    agreement.        Both    Buchman     and    Katz,

negotiators for Triad and Phoenix respectively, testified that they

acted under the belief that they were transferring the video rights

to Evidence of Love in the Movie Rights Contract.                  Furthermore,

Buchman testified that she would have found it highly unusual to

retain the video rights when the motion picture and television

rights were being sold.           It is not often that such agreement is

found in a contract dispute, and one would be hard pressed to

imagine more compelling extrinsic evidence of the parties' intent

than the unanimous assent of opposing negotiators.

     There is other evidence indicating that the appellants did

not, and had no intention to, retain the video rights to their

book.     In the Publishing Contract, the appellants granted the

broadest possible rights in their work to TMP.                If the appellants

were so concerned with the retention of video rights, they would

not have granted them to TMP.                 Also, during the negotiations

between TMP and Phoenix, the appellants were given copies of each

subsequent agreement drafted and were kept abreast of the progress

between   the   parties.         Not   once   did   the    appellants    make      any

objection or inquiry concerning the video rights.

        Further,   although       certain     rights   were   reserved        in   the

reservation clause of the Movie Rights Contract, TMP did not

reserve the video rights.          The appellants are beneficiaries of a

general "reservation of all rights not granted" clause, but in

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light of the specific recitals of rights reserved immediately

following it, this general reservation clause is of little benefit.

The rule of ejusdem generis applies where specific recitals in a

contract are either preceded or followed by an omnibus clause that

retains all rights not mentioned.             In such circumstance, courts

often apply the rule to limit the actual rights reserved to those

specifically mentioned, or rights intimately analogous to those

mentioned.     As such, having chosen not to specifically reserve the

video rights in their reservation clause, the appellants cannot

prosper by this boilerplate, catch-all clause.           Herman v. Malamed,

110 A.D.2d 575,   487 N.Y.S.2d 791    (1st   Dept.1985);   Forward

Industries, Inc. v. Rolm of New York Corp., 123 A.D.2d 374, 506
N.Y.S.2d 453 (2nd Dept.1986).           Based on the foregoing evidence

adduced at trial, we hold that the District Court's ruling was not

clearly erroneous, in that the evidence supports the contention

that the appellants did not retain the video rights to Evidence of

Love.

        In addition, the New York rules of contract construction also

militate against a finding that the appellants reserved video

rights.    One case that is particularly relevant to the controversy

at hand is Bartsch v. Metro-Goldwyn-Mayer, Inc., 391 F.2d 150 (2nd

Cir.), cert. denied, 393 U.S. 826, 89 S. Ct. 86, 21 L. Ed. 2d 96

(1968).     In that case, Bartsch granted to MGM "motion picture

rights throughout the world, in and to a certain musical play ...

together with the sole and exclusive right to ... copyright, vend,

license and exhibit such motion picture photoplays throughout the

                                       12
world."     Bartsch sold his rights in the play in 1930.                Id. at 151-

53.       Several   years   later,   MGM    decided    to   make    a   television

adaptation of the play, and Bartsch's estate sued, alleging that

television rights had not been granted.               The Bartsch court began

its analysis by pointing out that the Bartsch had given to MGM the

broadest possible grant of rights in the play.                  Id. at 154.     It

then noted that        the grant of rights was not limited in any

meaningful     sense.1      Finally,   the     court    found      that   although

television was not as pervasive when the contract was entered into

as it was at the time of the suit, the record indicated that the

growth of television was foreseeable when Bartsch sold his rights

in the play.        With these findings, the Bartsch court developed a

rule which is particularly applicable to the case at bar:                   when a

broad grant of rights is made in a contract, and a new use can be

construed to fall within that grant, and that use was foreseeable

at the time the grant was made, then the burden shall be on the

grantor to reserve the right to the new, but foreseeable, use.                 Id.

at 155;     see also, Landon v. Twentieth Century-Fox Film Corp., 384
F. Supp. 450, 452 (S.D.N.Y.1974).

      This rule is well suited to the present controversy.                  First,

the grant made to Phoenix was broad. Although the appellants argue

otherwise, the grant of "exclusive world wide motion picture and

television rights" is quite similar to language that other courts

      1
      Bartsch's contract with MGM contained a general reservation
clause similar to the one appellants have here. For reasons in
accord with those provided above, the Bartsch court gave no
significance to the general reservation clause.

                                       13
have construed as broad.      In Platinum Record Co. v. Lucasfilm,

Ltd., 566 F. Supp. 226 (D.N.J.1983), the court read an assignment of

the right to use the plaintiff's copyrighted songs in a motion

picture to be broad enough to include the right to use the songs in

the production of a home video.        This case involved a grant of

rights to use the plaintiff's copyrighted songs in the defendant's

motion picture.    When the defendant released a home video version

of the motion picture the plaintiffs sued, alleging a copyright

infringement.     The District Court relied on Bartsch in rejecting

the plaintiffs contention that a grant of motion picture rights was

not broad enough to include the use of home video.    Id. at 227-28.

       In Philadelphia Orchestra Ass'n v. Walt Disney Co., 821
F. Supp. 341 (E.D.Pa.1983), the Orchestra's grant of the right to

use its performance in a "feature picture," was deemed to be broad

enough to include the right to use the performance in a home video.

In answering the Orchestra's assertion that the term "feature

picture" cannot be taken to include a video, the court said "the

word "feature' refers to films of a certain length without regard

to the medium or location in which they are presented....      [T]he

common usage of the phrase "feature film' does not necessarily

imply a presentation in a theatre outside of the home."       Id. at

345.   The same is true here, except that the appellants did not

even limit the motion picture rights they granted to Phoenix with

any qualifier.    This does not necessarily mean, and we do not today

hold, that every grant of motion picture rights automatically

includes the right to produce videos.        Rather, we hold that a

                                  14
general grant of motion picture rights is potentially broad enough

to contemplate the later use of video as means of distribution.

See also, Rooney v. Columbia Pictures Industries, Inc., 538 F. Supp.
211 (S.D.N.Y.), aff'd, 714 F.2d 117 (2nd Cir.1982), cert. denied,

460 U.S. 1084, 103 S. Ct. 1774, 76 L. Ed. 2d 346 (1983);            Brown v.

Twentieth Century Fox Film Corp., 799 F. Supp. 166 (D.D.C.1992).

     All that remains to satisfy the Bartsch test is that the new

use be foreseeable, and that the appellants did not specifically

reserve the video rights.       It is not contestable that when the

grant to Phoenix was made in June 1988 the use of video as a medium

for the distribution of motion pictures was foreseeable.          The home

video may not have been an antiquity in 1988, but it had certainly

been with us long enough for the appellants to be cognizant of its

existence.   The appellants do not contend otherwise, nor could

they, since they are claiming that they actually intended to

reserve the video rights to their book.        It is also not in dispute

that the appellants did not specifically reserve the video rights.

There is no mention of video rights in the Movie Rights Contract

and, in fact, the record indicates that video rights were not

expressly mentioned by any party to this litigation until after the

Movie Rights Contract was entered into.              Therefore, the rule

enunciated in Bartsch controls in this case and compels a judgment

in Phoenix's favor.

                                CONCLUSION

     In   sum,   we   hold   that   the   granting   clause   whereby   the

appellants sold their rights to Evidence of Love was ambiguous as

                                     15
a matter of law.    As such the District Court properly considered

extrinsic evidence of the parties' intent, which overwhelmingly

indicates that the appellants intended to transfer the video rights

to the book.     Furthermore, we hold that under New York rules of

contract construction, the burden was on the appellants to reserve

video rights to their work, if such was their intent.          Therefore,

the appellants have conveyed their interests in the video rights of

their book and, since Phoenix owns such rights, its licensing of

its copyrighted motion picture based on said book for home video

does   not   constitute   any   infringement   of   whatever   rights   the

appellants may have retained in their book.

       The judgment of the District Court is AFFIRMED.

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