The opinion of the court was delivered by: GODDARD
This is a motion by the plaintiffs to confirm a report of a Special Master appointed by the late Judge Mandelbaum, upon an accounting pursuant to an interlocutory decree of this court, and defendants' objections to the report.
The original action was for damages for breach of contract, recession and an accounting.
The plaintiffs were the owners of a music publishing business and they, pursuant to an agreement dated March 20, 1928, sold their business to the defendants who were also music publishers.
The contract provided that defendants were to pay plaintiffs stipulated royalties upon the sales of various types of sheet music and music folios or books, and in addition, one half of the defendants' earnings from the various rights, including the performing rights and motion picture synchronization rights of the original compositions transferred to the defendants.
Plaintiffs sought an accounting claiming that defendants had failed to account for and pay the amounts due them under the contract.
Judge Mandelbaum, after trial of the issues, handed down an opinion with findings of fact and conclusions of law, and rendered an interlocutory decree in which it was ordered that a Special Master be appointed to ascertain 'the sums to which plaintiffs are entitled from defendants pursuant to a true and accurate accounting in accordance with the agreement of the parties dated March 20, 1928, from the date of March 20, 1928 until the date of the said accounting.'
The Master, after holding hearings intermittently over a period of more than three years, and after argument- both oral and by submission of briefs, handed down his report. The Master considered and passed upon seven separate items. Of these only two are now questioned. These two items as stated by the Master are as follows:
'These include all the revenues derived by defendants from licensing the combined Pallma and Fox catalogs, the performing rights revenues received from ASCAP and the motion picture synchronization revenues. Defendants concede that performing rights revenues (the ASCAP revenues or distributions) have not been credited to the plaintiffs, and that plaintiffs are entitled to a share thereof. The difference between the parties is the proportion which should be allocated to the plaintiffs. As to synchronization revenues, defendants, although admitting plaintiffs' rights to share therein, contend that they have fully credited them with amounts calculated by defendants as a proper amount on a 'peruse' basis. Plaintiffs contend that they are, to the extent that such revenues constituted bulk revenues derived from the co-mingled catalogs, entitled to share therein on a percentage basis as in the case of ASCAP revenues.'
'Defendants accounted for the sale of 8,115 folios (music published in book form) each of which contained a single Pallma composition and nine compositions from Fox catalog, at 1 cent per book. Plaintiffs contend that the royalty provided by the contract was 10% of the marked list price (concededly $ 1.00) for 10 cents per book.'
In reviewing the decision of the Master the court shall first consider the finding of the Master as to the folio item. The Master made the following finding of fact:
'5. The defendants never gave properly itemized, complete, accurate and semi-annual statements to the plaintiffs * * * '.
And also the following conclusion of law:
'3. The defendants committed a wilful breach of their obligation by failing to account to the plaintiffs * * * for royalties for the use of Pallma compositions in book or collection form.'
The Master found that the defendants accounted for the folio sales on the basis of 'at 1 cent per Book Royalty' as being the plaintiffs' proportional share of 10% of the marked list price. The Master rejected this accounting on the ground that it was contrary to the provision of the contract of March, 1928. The contract provided that 'If published in book form or collection form, a royalty of 10% of the market list price' was payable to the plaintiffs.
The defendants argued before the Master that since a folio or book contained ten (10) compositions and of the ten there was only one of the plaintiffs, the plaintiffs were entitled to their proportional share, namely one-tenth of ten percent of one dollar or one cent on each folio, totalling $ 81.15 for 8,115 folios.
The defendants offered testimony to sustain their theory, but the Master, after considering the testimony, the surrounding circumstances of making the contract, concluded that the contractual provision called for no other interpretation than that the plaintiffs were to receive 10% of the marked list price of the folios so long as at least one of the plaintiffs' compositions was included therein and that they would receive 10% even with more than one included in the folio. He rejected the contention that the plaintiffs were limited to a proportional share of the 10%.
Since there is sufficient evidence to support the Master's finding and it is not clearly erroneous, this court must accept it as controlling on this review. Pioneer Import. Corp. v. S.S. Lafcomo, 2 Cir., 159 F.2d 654; Todd Erie Basin Dry Docks v. The Penelopi, 2 Cir., 148 F.2d 884, 886; Crowell v. Benson, 285 U.S. 22, 51, 52 S. Ct. 285, 76 L. Ed. 598.
The Master's finding is therefor accordingly confirmed.
The second and more important item for review is that entitled 'Bulk Revenues'. This item consists of two different sources of revenue. One source of revenue is that derived from the American Society of Composers, Authors and Publishers, hereinafter referred to as ASCAP, for the performing rights; and the second source is that revenue derived from the licensing in bulk ...