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Commerzanstalt v. Telewide Systems Inc.

decided: July 14, 1989.

OSTANO COMMERZANSTALT, DR. HERBERT JOVY, AND TSC TECHNISCHE SYSTEME CONSULT GMBH & CO. COMMUNICATION INTERNATIONAL KG, PLAINTIFFS-APPELLEES,
v.
TELEWIDE SYSTEMS, INC. AND BERNARD L. SCHUBERT, DEFENDANTS-APPELLANTS. HALL, DICKLER, LAWLER, KENT & FRIEDMAN, ESQUIRES, APPELLANTS



Appeal from an order of the United States District Court for the Southern District of New York, Robert L. Carter, Judge, 684 F. Supp. 1174, awarding damages after our remand for the recalculation of damages in this suit for fraud and breach of contract. We affirm the district court's decisions to allow the naming of an additional plaintiff, to impose punitive damages, and to impose an award of attorneys' fees, but we modify the award of damages and remand for findings as to the award of attorneys' fees. Affirmed in part, modified in part, and remanded.

Oakes, Chief Judge, Kearse and Mahoney, Circuit Judges.

Author: Oakes

OAKES, Chief Judge

This is a consolidated appeal from a judgment entered on April 21, 1988, by the United States District Court for the Southern District of New York, Robert L. Carter, Judge, following our remand for the recalculation of damages. Ostano Commerzanstalt v. Telewide Systems, Inc., 794 F.2d 763 (2d Cir. 1986). In the first appeal, we affirmed Judge Carter's holdings as to liability for fraud and breach of contract. Id. (affirming as to liability Ostano Commerzanstalt v. Telewide Systems, Inc., 608 F. Supp. 1359 (S.D.N.Y. 1985)). After the remand, Judge Carter conducted a four-day trial on damages and ordered the entry of a second amended judgment. Ostano Commerzanstalt v. Telewide Systems, Inc., 684 F. Supp. 1172 (S.D.N.Y. 1988).

Telewide Systems, Inc. ("Telewide"), appeals the judgment against it in the amount of $6,120,367.26*fn1 for breach of contract. Bernard L. Schubert appeals the judgment against him for damages for fraud of $526,819.08*fn2 and punitive damages of $500,000. Telewide, Schubert, and their trial counsel, the firm of Hall, Dickler, Lawler, Kent & Friedman, appeal a $153,087 award of attorneys' fees that was entered jointly and severally against all of them.

Telewide and Schubert argue that it was improper for the district court to grant an amendment adding a new plaintiff, TSC Technische Systeme Consult GmbH & Co. Communication International KG ("TSC"), after the close of testimony on the remand, and they argue that the assignment of the claim of plaintiff Ostano Commerzanstalt ("Ostano") to TSC precludes Ostano from recovering any damages. They also argue that the district court improperly calculated the measure of damages for breach of contract, fraud, and punitive damages and that the district court improperly excluded testimony of the validity of the films' copyright under German law. Finally, Telewide, Schubert, and their law firm, which has appealed separately, argue that the district court erred in assessing attorneys' fees.

FACTUAL BACKGROUND

Ostano and Dr. Herbert Jovy began this action in 1982 alleging breach of contract, breach of warranty, and fraud in connection with an agreement for the licensing of certain old feature films in Europe and Africa. Although we presume the reader's familiarity with the prior opinions in this case, we will present a brief summary of the facts. Plaintiff Dr. Herbert Jovy is affiliated with three foreign companies that were involved in the transaction that gave rise to this lawsuit. Dr. Jovy's wife owns plaintiff Ostano, his wife and son, Hanns-Arndt Jovy, own plaintiff TSC, and Dr. Jovy also has a relationship with a third company, TT Telefilm Trading, Ltd. ("TT Telefilm"). Defendant Bernard Schubert is the president and sole shareholder of defendant Telewide, which is an American company. In 1980, Video Communications Inc. ("VCI"), an apparently independent company, bought film rights from Telewide and sold them to Ostano. The license was for the right to distribute for television twenty-six feature films in four German-speaking countries (East and West Germany, Austria, and Switzerland) and four other countries (France, Belgium, the Netherlands, and Luxembourg). Also in 1980, Ostano sublicensed its rights for the German-speaking countries to TT Telefilm, and TT Telefilm sublicensed those rights to TSC. In 1981, the plaintiffs sued VCI alleging various problems with the license. When that suit was settled, VCI assigned its rights in its contract with Telewide to Ostano. The present suit was filed in 1982. In 1983, Ostano assigned its remaining contract rights (those in the non-German-speaking countries) and its claims against the defendants to TSC. 684 F. Supp. at 1173. Due to various difficulties that were the source of the district court's holding on liability, the plaintiffs were never able to distribute most of the films. A few, however, were licensed to West German broadcasters. 794 F.2d at 766.

After the first trial, the district court held Telewide liable for breach of contract and warranty in the sum of $4,262,021.75. The court calculated damages by speculating that the value of a license could be computed simply from the number of television sets within the territory for which the license was granted. Judgment was also granted against both Telewide and Schubert for fraud, false representation, and fraudulent breach of warranty in the same amount. The district court further held Telewide and Schubert liable for prejudgment interest from May 20, 1980, awarded punitive damages jointly and severally in the sum of $500,000, and held plaintiffs entitled to an award of attorneys' fees and costs. 608 F. Supp. at 1369.

On the first appeal, we agreed that Telewide was liable for breach of contract and that Telewide and Schubert were both individually liable for fraud, but we found the district court's damage calculation unsatisfactory. 794 F.2d at 766-68. We also pointed out the necessity of differentiating between fraud and breach of contract damages, id. at 766, and held that the district court could not award damages against Schubert for fraudulent breach of warranty because he was not a party to the contract, id. at 767. We warned that Ostano should not receive a double recovery, holding that it was improper for the district court to add the price that Ostano paid for the license to the damages for breach of contract. Id. at 767-68. Finally, we remanded the issue of punitive damages, requiring that any award be based solely on the deliberate and willful nature of the fraud and misrepresentation, and we noted that on remand sanctions might be considered. Id. at 768.

After a four-day trial on remand, Ostano and Jovy moved to add as an additional plaintiff TSC, to which they had assigned their rights to the license in 1983. On January 22, 1988, the district court granted the motion, thereby conforming the pleadings not only to the evidence but also to the original pretrial order.

Due to the controversy over the addition of TSC, a description of the pretrial order will be helpful. The pretrial order had many references to TSC's role as a claimant. It stated that "in November 1980, Ostano sub-licensed the distribution of the films in German-speaking countries to a Munich affiliate named [TSC]." It also stated that plaintiffs' case would be that Telewide and Schubert had, among other things, "interfered with Ostano's and TSC's access to prints and pre-print material needed to make prints," and that "both Ostano and TSC are owned by Dr. Jovy's wife." The order referred to TSC's contract with Polygram in Hamburg, West Germany, for certain of the films, to Orgteam, a subsidiary of Radio Luxembourg, to which Ostano and TSC were attempting to market the films, to TSC's loss of the entire contract with Polygram, and to the fact that negotiations with Orgteam had had to be discontinued. It also referred to the claim that "Ostano and TSC had been unable successfully to market the films in the Territory" and that lost profits of at least $1,426,195 would be shown "by virtue of lost sales by Ostano and TSC in Germany, Austria, Switzerland, Holland, Luxembourg, Belgium and France." The description of the defendants' case, on the other hand, included a general claim that plaintiffs had failed to join indispensable and necessary parties and were not the real parties in interest.

The trial exhibits listed in the pretrial order also included many references to TSC: No. 47, an October 29, 1982, letter from TSC to Filmlager Berlin; No. 52, an undated contract between TSC and WDR regarding "Marry Me Again" and other films; No. 54, a contract dated October 29, 1981, between TSC and Bayerischen Rundfunk; Nos. 57 and 58, each consisting of a one-page list of the subject films by TSC with handwritten notations or with German titles; No. 60, a sixty-four-page list of films by TSC; No. 61, a six-page list of films by TSC; and No. 67, an agreement dated December 18, 1980, between TT Telefilm, as licensor, and TSC. Finally, two of the issues of fact to be determined by the court, Nos. (i) and (j), referred to TSC.

At the hearing on damages there was evidence of the prices of films shown on European television, evidence of expenses and revenues that the plaintiffs accrued in seeking to license the Telewide films, and evidence of the value of the Telewide films. One of the witnesses for the plaintiffs, Dr. Peter Sczygiol, was a representative of the publishing house of Springer AG who had negotiated with the plaintiffs to purchase the rights to license some of the Telewide films in seven of the countries. Dr. Jovy's son, Hanns-Arndt Jovy, also testified for the plaintiffs. The defendants called Laurence Gershman, a former MGM executive, and a fourth individual whose testimony ...


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