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August 21, 1981

BUDDY BUIE PRODUCTIONS, INC. and Ron Hammond, James Cobb, Barry Bailey, Dean Daughtry, Robert Nix, and Paul Goodard, together p/k/a the Atlanta Rhythm Section, Defendants

The opinion of the court was delivered by: WEINFELD


Plaintiff, Polygram Records Inc. ("Polygram") is in the business of exploiting, marketing and selling phonograph records. Buddy Buie Productions Inc. ("BBP") is a production company which produces and furnishes the recording services of the five individual defendants, a rock and roll music band, professionally known as The Atlanta Rhythm Section ("ARS"). *fn1" Perry C. Buie, "Buddy" Buie ("Buie") has been the President of BBP since its formation. BBP, under an agreement with the individual defendants, is entitled to their exclusive services in the recording of phonograph records. Polygram, BBP and the individual defendants had a contractual relationship commencing in 1973 under which Polygram became the exclusive recording company for all ARS records.

The 1973 agreement was superseded by another on October 1, 1977 (the "1977 agreement") under which the defendants again granted plaintiff Polygram the exclusive right to all ARS recordings during the existence of the agreement. Under its terms BBP was obligated to produce and deliver four albums of ARS master recordings to plaintiff for its exclusive exploitation, manufacture and distribution.

 Plaintiff commenced this action upon a claim that the defendants breached their exclusive service agreement by entering into an agreement in May 1981 with CBS Records Inc., a competing record company. Plaintiff seeks to enjoin the defendants from producing or recording any records for CBS or any other recording company, and money damages. *fn2" Plaintiff can prevail only if the 1977 agreement was in effect at the time of the alleged breach. The parties are in agreement that the resolution of this issue depends upon whether plaintiff timely and properly exercised an option to extend the agreement for a further period so that it was in effect when defendants entered into their agreement to record for CBS.

 The initial period of the 1977 agreement was for a term beginning October 1, 1977 and ending 180 days subsequent to the delivery by BBP to Polygram of master recordings for the fourth and final ARS album. Polygram had an option to extend the agreement for a further term covering four additional albums by sending a written notice to BBP at least 30 days prior to the date that the contract otherwise would expire. Since the agreement by its terms expired 180 days after the delivery of the fourth album, the date of delivery is crucial on the issue of whether the option was timely exercised so that plaintiff was entitled to ARS' exclusive services at the time of the alleged breach.

 Delivery under the agreement required BBP to "deliver completed, edited and fully mixed master tapes in accordance with the Company's reasonable instructions" *fn3" comprising

a two-track stereo and a discrete quadraphonic master tape for each Master recorded hereunder together with a "reference lacquer" therefor, which tape shall be fully edited, mixed and leadered prior to delivery to Company (Polygram) so that they are in proper form for the production of parts necessary for the manufacture of commercial Phonograph Records. *fn4"

 The defendants contend that they made delivery of the last and fourth album in accordance with the foregoing contract provisions by delivery on June 11, 1981 of a reference lacquer *fn5" to plaintiff at its offices where it was played in the presence of various Polygram executives who approved and accepted it and on that day mailed a check for $ 150,000 to BBP as the final payment.

 The plaintiff, contrariwise, contends that the reference disc played and delivered on June 11, 1980 was an "unapproved" disc and that the final approved reference disc was not delivered and accepted by it until June 17, 1980. Accordingly, plaintiff claims that its notice of exercise of the option mailed on November 14, 1980, was sent on the 150th day after delivery, within the required time for the exercise of the option and hence the contract was renewed for a further term and was in effect in May 1981, the date of the alleged breach by the defendants. The defendants not only dispute that June 17, 1980 was the date of delivery but they challenge that in fact the notice was mailed on November 14, 1980. The envelope in which the exercise of option letter was mailed bears a November 16 postmark and was received by BBP on November 18. Two days later, on November 20, defendants' counsel notified Polygram orally and in writing that plaintiff had not timely exercised its option and that the defendants deemed the agreement terminated. Plaintiff made no response to defendants' disavowal until two months later when, on January 19, 1981, it notified all recording companies that a contract existed between plaintiff and the defendants. Thus a threshold question is on what day, June 11 or June 17, 1980, delivery was made by BBP to plaintiff of a completed master tape and reference lacquer as required by the provisions of the contract.

 Masterdisk Corporation is a disc-cutting studio where the final artistic changes are made in a recording. The artist's product is originally recorded on many different tracks and subsequently "mixed down" that is, reduced to a two-track tape which is then taken to a mastering facility, such as Masterdisk, where final sound adjustments are made. A reference disc and a master disc are produced. The reference disc is used so that it may be heard by those interested in the product either for approval or suggested changes or modifications. The master disc is retained by the studio and upon approval is sent to a plating plant where it is used to manufacture the record that is sold to the public. Masterdisk was the studio used for the mastering of the ARS recordings. The parties' practice with respect to the first three albums was that the final two-track tape, after mastering, was left at Masterdisk and, upon final approval, Polygram would contact Masterdisk and order "the parts" *fn6" necessary for the production of the album. This was the procedure followed with respect to the fourth album, the subject matter of this action.

 Plaintiff, to support its claim that June 17, 1980 is the effective delivery date, relies in the main upon the testimony of two witnesses, Stuart Fine, then its East Coast Director of Artists and Repertoire, and James Del Balzo, then its Assistant National Album Promotion Manager. Fine testified in substance that on June 11, 1980, Buddy Buie, who mastered the recordings of the artists, came to his office together with Ronnie Hammond, lead singer of the ARS artists, and their respective wives, and played, in his presence and at times in the presence of other executives, a reference disc which Buie said he had been working on the previous two days; that before other Polygram people joined the meeting Buie told him that there were still some changes to be made; that he had "to roll off the bottom end"; *fn7" that he would be working with Bob Ludwig, Masterdisk's chief engineer, later that day at Masterdisk to effect the changes, and that what they would be listening to was an unapproved reference disc. Fine acknowledged that everybody who heard the record liked it. Finally, he testified that after Buie and Hammond left the office, he wrote upon the cover of the reference record "not approved." However, he did not inform any superior or anybody else that it was not approved.

 Fine also testified that later that day Arnold Geller, co-manager of ARS, telephoned and advised him that Buie and Ludwig would make the final changes and Polygram was not to place the order for final parts until it received from Buie another reference disc or Fine heard from defendants. Fine stated that he did nothing further until Geller called him on June 17 and gave BBP's approval, whereupon Fine voluntarily waived further Polygram approval and sent the "reference" approval form to the production department so they would "order parts" and commence commercial production of the album.

 Del Balzo testified that on June 11 he was present when Buie played the reference record and asked Buie for cassettes of the record, to which Buie responded, "no, it was not an approved record." Finally, in addition to the reference approval form, plaintiff offered other internal documents to support its claim that Polygram regarded June 17, 1980 as the delivery date. Based in large part upon the foregoing testimony and related events, plaintiff contends that the date of delivery was June 17.

 Defendants' evidence is in sharp contradiction to that of plaintiff. Buie testified that on June 9 and 10 he and Bob Ludwig, the engineer at Masterdisk, worked there in producing a reference lacquer and two-track tape which were completed and in final and satisfactory form on June 10; that on June 11, accompanied by Hammond and their respective wives, he went to the Polygram offices for the purpose of delivering the reference lacquer to Polygram, to share his excitement about the record with company officials, and to obtain final payment of $ 150,000. He delivered the record to Fine in his office, where it was played for Fine and other Polygram executives, including Freddie Haayan, its President; that all who heard it were enthusiastic and ecstatic about the record; they, as well as he, approved the record, and Haayan was so enthusiastic that he asked for a cassette that Buie had in his hand. Buie categorically denied the testimony of Fine and Del Balzo that he said the reference disc was "unapproved" or that he had to "roll( ) off some bass." Buie testified that nothing further was to be done on the record and that he did not return to Masterdisk at any time thereafter for the purpose of making any changes. He expected to receive payment of $ 150,000 of the balance due under the contract, ...

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