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March 23, 1984


The opinion of the court was delivered by: CONNER



 This is an action for breach of a written contract between plaintiff The Chic Organization, Ltd. ("Chic") and defendant Motown Record Corporation ("Motown"), under which Chic was engaged to produce a record album to be performed by Diana Ross ("Ross"), and was granted an option to produce a second Ross album if the first album surpassed a certain level of sales. Following the successful production and release of the first album contemplated by the contract, Chic exercised its option. Unfortunately, the option album was never recorded. In fact, since the release of that first album, Ross has not made any additional recordings for Motown, and she is not under contract to RCA Records ("RCA").

 Plaintiff commenced the instant action seeking damages for Motown's alleged liability for non-performance as to the option album, and also to collect certain royalties relating to the first recording that it claims are still due under the contract. Prior to trial, the claim for amounts due was settled pursuant to a stipulation read into the record. See tr. at 2-5. At the same time, defendant withdrew a counterclaim it had asserted in this action. See id. at 5. On September 26, 1983, the question of Motown's liability under plaintiff's first cause of action, which relates to the option album, was tried before the Court, sitting without a jury. This Opinion and order incorporates the Court's findings of fact and conclusions of law pursuant to Rule 52 F.R.Civ.P. For the reasons stated below, judgment will be entered in favor of defendant dismissing plaintiff's complaint.


 Most of the facts underlying this action have been stipulated by the parties, and the few that have not can be set forth without extended discussion:

 Chic is a New York corporation engaged in the business of producing musical recordings. Agreed Facts at P1. In that operation, Chic provides the services of Nile Rodgers ("Rodgers") and Bernard Edwards ("Edwards"), both principals of the corporation, to perform the actual production of the recordings. In approximately June of 1979, Martin Itzler ("Itzler"), Secretary and General Counsel of Chic, initiated discussions with Motown concerning a proposed project for Chic's production of a recording of a performance by Ross. Agreed Facts at PP2, 5; tr. at 18-19, 24. Between June and August of 1979, Itzler had a series of telephone conversations concerning the proposed project with various representatives of Motown, including Suzanne DePasse ("DePasse"), Lee Young, Jr. ("Young"), Lee Colton ("Colton"), and Robert Rosene ("Rosene"). Agreed Facts at P6; tr. at 25-26.

 On the basis of these discussions, Rosene, on August 8, 1979, sent Itzler a proposed agreement between Motown and Chic, pursuant to which Rodgers and Edwards would produce a recording of Ross. Agreed Facts at P7; tr. at 26-27; see Pl. Exs. 8-9.Paragraph 11(A) of the proposed agreement provided Chic with an option to produce Ross's next album, so long as net domestic wholesale sales of the first recording exceeded $1,000,000. See Pl. Ex.9 at P11(A). Itzler scrutinized this first draft and made extensive revisions, which he then discussed with Motown's representatives. Agreed Facts at P8; see tr. at 27-29; Pl. Ex.9 (handwritten markings reflect Itzler's changes). Motown then prepared and sent to Itzler a second draft of the proposed agreement, which reflected the changes agreed to by Itzler and Motown's representatives during their negotiations. Agreed Facts at P9; see tr. at 29-30; P1. Exs. 10 (red-lined copy) and 11.

 When Itzler received this second draft he found that, in addition to the changes he had discussed with Motown's representatives, it failed to provide Chic with an option to produce a second album. See tr. at 34-35. According to what Itzler was told by Motown, the option was unilaterally deleted because Motown was not sure that Ross would go along with it. See tr. at 36. Nevertheless, Itzler engaged in further discussions with Motown's representataives and they succeeded in agreeing upon a third and final draft of the agreement, in which they reinstated a modified option provision. *fn1" See tr. at 38. On August 28, 1979, Rosene sent Itzler a copy of that final draft. Agreed Facts at P11; see Pl. Ex.12. Chic, Rodgers, and Edwards executed that version of the agreement, which was forwarded on August 30, 1979 to Motown for signature. Agreed Facts at P12; see Pl. Ex.13. Colton, Vice President and General Counsel of Motown, signed the document on behalf of defendant, and on September 7, 1979 he sent Itzler a fully executed copy of the agreement (the "Chic/Motown Agreement"). Ross, however, was not a party to this contract.

 On November 5, 1979, Rodgers and Edwards began studio production of the initial recording called for under the Chic/Motown Agreement. Agreed Facts at P14. The production work was completed by approximately the beginning of April 1980, and the recording, which was ultimately entitled "Diana," was released on May 22, 1980. Agreed Facts at P15.

 On October 10, 1980, Itzler sent a letter to Young to advise Motown that Chic was exercising its option under P11(A) of the Chic/Motown Agreement to produce "one of the next two" albums recorded by Ross for Motown. Agreed Facts at P18; see Pl. Exs. 17A, 17B. In a letter dated October 27, 1980, Motown acknowledged receipt of Itzler's letter and stated:

 Current evidence supports the conclusion that your option was validly exercised. Inasmuch as there are no present plans with respect to producing the "next" Diama Ross album, we are unable to indicate which album we might wish you to produce.

 Pl. Ex. 18. Motown does not now dispute that the option was properly exercised. See tr. at 150.

 As it turned out, subsequent to her recording of "Diana," Ross refused to record another album for Motown. Agreed Facts at P20. Although at the time the parties entered into the Chic/Motown Agreement Ross was bound to Motown under an exclusive personal services contract dated December 24, 1973 (the "Ross/Motown Contract"), Agreed Facts at P4; see Pl.Ex. 1, that contract, which had a term of seven years, expired on December 23, 1980. See id. Moreover, even before that contract expired, following the "Diana" album, Ross refused to make any additional records for Motown until Motown reached a new agreement with her. See tr. at 145. Although Motown made reasonable efforts to get Ross both to re-enter the studio and to agree to a new contract, those efforts ...

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