Appeal by Famous Music Corporation from a judgment for money damages for breach of two contracts entered in the United States District Court for the Southern District of New York, Richard Owen, Judge, after a jury trial. Cross-appeal by Contemporary Mission, Inc., from a ruling excluding certain evidence concerning prospective damages. Affirmed in part, reversed in part.
Mansfield, Van Graafeiland and Meskill, Circuit Judges. Van Graafeiland, Circuit Judge, concurring in part and dissenting in part.
This is an appeal by Famous Music Corporation ("Famous") from a verdict rendered against it in favor of Contemporary Mission, Inc. ("Contemporary"), in the United States District Court for the Southern District of New York, after a jury trial before Judge Richard Owen. Contemporary cross-appeals from a ruling which excluded testimony concerning its prospective damages. The dispute between the parties relates to Famous' alleged breach of two contracts.
Contemporary is a nonprofit charitable corporation organized under the laws of the State of Missouri with its principal place of business in Connecticut. It is composed of a small group of Roman Catholic priests who write, produce and publish musical compositions and recordings.*fn1 In 1972 the group owned all of the rights to a rock opera entitled VIRGIN, which was composed by Father John T. O'Reilly, a vice-president and member of the group. Contemporary first became involved with Famous in 1972 as a result of O'Reilly's efforts to market VIRGIN.
Famous is a Delaware corporation with its headquarters in the Gulf Western Building in New York City. It is a wholly-owned subsidiary of the Gulf Western Corporation,*fn2 and, until July 31, 1974, it was engaged in the business of producing musical recordings for distribution throughout the United States. Famous' president, Tony Martell, is generally regarded in the recording industry as the individual primarily responsible for the successful distribution of the well-known rock operas TOMMY and JESUS CHRIST SUPERSTAR.
The relationship between Famous and Contemporary was considerably more harmonious in 1972 than it is today. At that time, Martell thought he had found, in VIRGIN, another TOMMY or JESUS CHRIST SUPERSTAR, and he was anxious to acquire rights to it. O'Reilly, who was encouraged by Martell's expertise and enthusiasm, had high hopes for the success of his composition. On August 16, 1972, they executed the so-called "VIRGIN Recording Agreement" ("VIRGIN agreement") on behalf of their respective organizations.
The terms of the VIRGIN agreement were relatively simple. Famous agreed to pay a royalty to Contemporary in return for the master tape recording of VIRGIN and the exclusive right to manufacture and sell records made from the master. The agreement also created certain "Additional Obligations of Famous" which included, inter alia: the obligation to select and appoint, within the first year of the agreement, at least one person to personally oversee the nationwide promotion of the sale of records, to maintain contact with Contemporary and to submit weekly reports to Contemporary; the obligation to spend, within the first year of the agreement, no less than $50,000 on the promotion of records; and the obligation to release, within the first two years of the agreement, at least four separate single records from VIRGIN. The agreement also contained a non-assignability clause which is set out in the margin.*fn3
On May 8, 1973, the parties entered into a distribution contract which dealt with musical compositions other than VIRGIN. This, the so-called "Crunch agreement," granted to Famous the exclusive right to distribute Contemporary's records in the United States. Famous agreed to institute a new record label named "Crunch," and a number of records were to be released under it annually. Contemporary agreed to deliver ten long-playing records and fifteen single records during the first year of the contract. Famous undertook to use its "reasonable efforts" to promote and distribute the records. Paragraph 15 of the Crunch agreement stated that a breach by either party would not be deemed material unless the non-breaching party first gave written notice to the defaulting party and the defaulting party failed to cure the breach within thirty days. The notice was to specify the nature of the alleged material breach. The contract prohibited assignment by Contemporary, but it contained no provision relating to Famous' right to assign.
Although neither VIRGIN nor its progeny was ever as successful as the parties had originally hoped, the business relationship continued on an amicable basis until July 31, 1974. On that date, Famous' record division was sold to ABC Records, Inc. (ABC). When O'Reilly complained to Martell that Famous was breaking its promises, he was told that he would have to look to ABC for performance. O'Reilly met with one of ABC's lawyers and was told that ABC was not going to have any relationship with Contemporary. On August 21, 1974, Contemporary sent a letter to Famous pursuant to paragraph 15 of the Crunch agreement notifying Famous that it had "materially breached Paragraph 12,*fn4 among others, of [the Crunch] Agreement in that [it had] attempted to make a contract or other agreement with ABC-Dunhill Record Corporation (ABC Records) creating an obligation or responsibility in behalf of or in the name of the Contemporary Mission." This lawsuit followed.
Contemporary brought this action against several defendants and asserted several causes of action. By the time the case was submitted to the jury the only remaining defendant was Famous and the only remaining claims were that (1) Famous had failed to adequately promote the VIRGIN and Crunch recordings prior to the sale to ABC, (2) Famous breached both the VIRGIN and Crunch agreements when it sold the record division to ABC, and (3) Famous breached an oral agreement to reimburse Contemporary for its promotional expenses. The latter claim has no relevance to this appeal.
The district judge submitted the case to the jury in two parts: the first portion as to liability and the second concerning damages. The court's questions and the jury's answers as to liability and damages are set forth below:
1. Has plaintiff established by a fair preponderance of the credible evidence that Famous breached the Virgin agreement by failing to adequately promote Virgin in its various aspects as it had agreed?
2. If you find a failure to adequately promote, did that cause plaintiff any damage?
3. Did the assignment of the Virgin contract by Famous to ABC cause any damage to plaintiff?
4. Did plaintiff establish by a fair preponderance of the credible evidence that Famous failed to use "its reasonable efforts consistent with the exercise of sound business judgment" to ...