The opinion of the court was delivered by: CARTER
Plaintiff Ostano Commerzanstalt ("Ostano") is a Liechtenstein company with its principal place of business in Switzerland. Plaintiff Dr. herbert Jovy is a citizen and resident of West Germany and pursuant to a power of attorney from Ostano has acted on the latter's behalf and its affiliate Technische Systeme Consult Gmby. & Co. Communication International KG ("TSC") in this lawsuit. Ostano is owned by Jovy's wife and TSC is owned by Jovy's wife and son, Hanns-Arndt Jovy. Until 1983 TSC's general manager was a Dr. Heinrich Tichawsky, but that position is now filled by young Jovy.
Defendant Telewide Systems, Inc. ("Telewide") is a Delaware corporation with its principal place of business in new York City at 118 East 65th Street. Defendant Bernard L. Schubert, a citizen of New York and resident of New York City, is the president and sole shareholder of Telewide.
Plaintiffs instituted this action alleging that Telewide is guilty of breach of contract and breach of warranty as licensor of twenty-six feature films in the geographical area comprising the two Germanies, Austria, Switzerland, Holland, Luxembourg, Belgium and France ("the territory") granting the licensee exclusive rights to rent, sell, distribute or otherwise exploit these films. Plaintiffs allege that the term of the license agreement is twelve years beginning May 13, 1980, and that Ostano stands in the shoes of the original licensee, Video Communications Inc. ("VCI"), as assignee.
Plaintiffs allege that Schubert is guilty of fraud and fraudulent misrepresentation. They seek both compensatory and punitive damages. Plaintiffs also allege that since the defense was frivolous and fraudulent evidence was introduced at trial, plaintiffs are entitled to an award of attorney's fees to be assessed against defendants and their counsel.
There is remarkably little real dispute among th parties concerning the basic facts in this controversy. Defendants admit to some representations which were known to be false when made. Schubert's testimony at trial has been marked by inconsistencies between what he said on the witness stand, in earlier deposition testimony, and in letters and telexes written or issued when the events at issue unfolded. Nonetheless, the area of factual dispute is quite narrow.
The case was tried to the court April 16-23, 1984. The testimony abduced at the trial established the following facts: Jovy was in the United States early on in 1980, and was told by a business associate in Houston that VCI had a great many television films. Jovy was interested in selling, leasing and distributing TV films in the territory. Jovy flew to Tulsa and had several conversations with VCI's president Bill Blair about securing the right to distribute, sell, rent, etc. various films in the territory.
In the previous year Blair had had discussions with Schubert about VCI becoming an exclusive licensee for the sale and distribution of various Telewide film. Nothing had come of these discussions. When Blair met Jovy he had in his possession a list of Telewide films he had received from Schubert in connection with these earlier conversations, and he showed this listing to Jovy. Jovy had Tichawsky, a film expert, go over the list, and Tichawsky selected twenty-six films that he felt would do well in the territory.
Blair advised Schubert of his discussions with Jovy, and Blair and Schubert thereafter entered in to a licensing agreement dated May 134, 1980. Pursuant to this agreement VCI was given "exclusive rights to distribute, rent, exhibit, exploit, transmit, release, sublease or otherwise market [twenty-six motion pictures listed for twelve years beginning May 15, 1980, and ending May 31, 1992 in the territory] by means of aural and visual television." The licensee was obligated to pay $442,000, or $17,000 per title, 10% ($44,200) of which was to be paid immediately with the balance ($397,800) to be paid on receipt of laboratory letters addressed to laboratories, persons or firms in which any of "the pre-print materials or elements of the pictures are located." These letters were notice of VCI's right to order 16 mm. prints, video tapes and disks. The agreement certified that Telewide "has the right without any limitation or restriction whatsoever to grant [VCI] the exclusive license to lease" the twenty-six motion pictures and "the full right, powers, and authority to enter into and perform this agreement." Plaintiffs' Ex. 1A.
The titles of the twenty-six films were listed in a Schedule A attached to the agreement. They were: Betrayed Woman, Big Tip-Off, Blue Gardenia, Cash On Delivery, Devil's Harbor, Fighter, Gilded Cage, Girl Of The Night, Trapped, last Rebel, Las Vegas Story, Lucky To Be A Woman, Main Street To Broadway, Marry me Again, Mourning Becomes Electra, Night Freight, Port Of Hell, Port Of New York, San Francisco Story, Shanghai Gesture, Sun Sets At Dawn, Sword Of Venus, Toughest Man Alive, Treasure Of Ruby Hill, Women in Paradise and Impulse.
About a week after the agreement between Telewide and VCI was concluded, on or about May 20, 1980, Ostano and VCI entered into an agreement for VCI to license these twenty-six films to Ostano at $27,000 per negative for each film. Jovy, before entering the agreement with Blair, discussed the status of the copyrights to the films, who possessed negatives and Ostano's right of access. Blair assured him that the films' copyrights were held by Telewide and that Jovy could secure prints from negatives on receipt from VCI of appropriate letters of access.
In September, 1980, Jovy again asked Blair about the copyright status of the twenty-six films he was interested in since he had heard rumors that some of the films had no copyright protection. (Pl. Ex. 4. Blair advised Jovy by telex on September 3, 1980, that he had a call into Telewide about this and that he had "paid for exclusive and will demand same." Pl. Ex. 5. On September 5, 1980, after being given Schubert's assurances on the matter or at the least implying to Jovy that he had received Schubert's assurances, Blair telexed Jovy that "none of the films are in [the] public domain. All are protected by copyright." (Pl. Ex. 6).
Blair and Jovy renegotiated the May 20, 1980 agreement, replacing it with a contract dated November 26, 1980. Ostano licensed its rights in West Germany under that agreement to TSC. Ostano or TSC made payments to VCI by March 19, 1981, totalling ...