Sinclair and Gershon preclude Mr. Shulman's attempt to assess royalties based on missing invoices and checks. In her review of the Arthur Andersen audit, Magistrate Judge Gershon concluded that it would be inappropriate to require that defendant shoulder the burden of identifying the contents of each of the numerous missing invoices. To avoid providing plaintiff with a windfall based on the unavailability of records, the magistrate refused plaintiff's request that all purchases unaccounted for in existing invoices be treated as royalty purchases. Order dated Dec. 10, 1986, at 11. Mr. Shulman's approach is not at odds with Magistrate Judge Gershon's ruling. Mr. Shulman does not draw the type of sweeping adverse inference that plaintiff earlier sought from Magistrate Judge Gershon to account for missing documents. Rather than treat every missing check and invoice as royalty related, Mr. Shulman attempted to formulate a reasonable basis to compensate plaintiff for royalties that it did not receive because of defendant's failure to preserve relevant documents. Although it would be improper to draw a blanket adverse inference against defendant for failing to safeguard these documents, it would be equally inequitable to allow defendant to immunize itself by invoking the absence of records as a bar against plaintiff's claims for compensation.
However, Magistrate Judge Sinclair, responding to plaintiff's allegations of impropriety on defendant's part, unequivocally concluded that "absolutely no evidence has been adduced to suggest that the loss of . . . records was intentional or otherwise culpable." Order dated July 23, 1981, at 21. Mr. Shulman's speculation to the contrary is of no force or effect. Mr. Shulman's role in this matter was to conduct an audit of defendant's royalty statements for the 1973-1975 period and to determine, on the basis of the available evidence, the extent of any errors therein. It is inappropriate for Mr. Shulman to compensate plaintiff for what he suspects may have been the fraudulent destruction of records by defendant.
b. Average Cassette Price
The parties dispute Eye Gate's average purchase price for captioned filmstrip cassettes. Mr. Shulman calculated that price to be $ 0.51 based "primarily" on his assessment of available invoices from Associated Audio Services ("Associated"), one of defendant's cassette suppliers. Revised Report at 10. Defendant argues that Mr. Shulman should have relied upon invoices from RKO, another supplier, which establish the average royalty cassette price to be $ 0.86.
According to defendant, all of the Associated invoices are for noncaptioned-filmstrip cassettes, and there is no evidence that Associated provided captioned cassettes to defendant during the audit period. Thus, defendant contends, the available RKO invoices, all of which are for captioned-filmstrip cassettes, are a better indicator of the relevant average price.
In our view, it was reasonable for Mr. Shulman to consider the Associated invoices in calculating the average price of royalty cassettes. Defendant's surviving records establish that Associated supplied a significant number of cassettes, albeit nonroyalty cassettes, to defendant during the audit period. Moreover, the fact that in 1980, defendant purchased royalty cassettes from Associated lends support to Mr. Shulman's assumption that Associated also did so during the period in question. However, we find that Mr. Shulman erred in refusing to include the RKO data in his computations. Mr. Shulman's reasoning in this regard is opaque. He offers no persuasive support for his contention that "the bulk of the 86% of missing invoices were those of Associated." Shulman Aff. dated Dec. 15, 1995, at 6. Mr. Shulman maintains that "[he] can only be concerned with missing invoices, not existing ones." Id. Yet, as defendant observes, Mr. Shulman relied principally on existing Associated invoices to calculate the average cassette price. We discern no reasoned basis to exclude the RKO invoices, which are at least as relevant as those from Associated. Rather than clouding the issue, as Mr. Shulman claims, defendant's proposed $ 0.58 average price,
based on both sets of invoices, provides a reasonable estimate of the weighted average cassette price.
c. The 1.9 Multiplier
Defendant also attacks Mr. Shulman's decision to award plaintiff royalties for every master reproduced on the cassettes at issue rather than for each cassette. In defendant's view, the fact that many of the royalty cassettes contained recordings of two masters is irrelevant because the Consent Judgment unambiguously provides that royalties are to be assessed at a rate of "fifty cents for each cassette or other type of tape." Consent Judgment at P 2. Plaintiff responds that the parties' intent upon entering into the Consent Judgment was to compensate plaintiff for reproduction of its audio masters and that royalties should therefore "be proportionate to the number of masters reproduced." AVP Mem. at 48.
A consent judgment or decree is "an agreement of the parties entered into upon the record with the sanction and approval of the court." Schurr v. Austin Galleries of Ill., Inc., 719 F.2d 571, 574 (2d Cir. 1983) (quoting Town of Oyster Bay v. Forte, 34 Misc. 2d 5, 219 N.Y.S.2d 456, 459 (N.Y. Sup Ct. 1961)). A consent judgment is a contract to end a lawsuit in which the parties agree to the relief to be provided by the judgment and the wording to effectuate that relief. Interspace Inc. v. Morris, 650 F. Supp. 107, 109 (S.D.N.Y. 1986). It is presumed that parties enter into a consent judgment only after careful negotiation has produced agreement on its terms. United States v. Armour & Co., 402 U.S. 673, 681-82, 29 L. Ed. 2d 256, 91 S. Ct. 1752 (1971).
Because a consent judgment typically embodies a compromise between adversaries, the consent judgment itself cannot be said to have a purpose. Rather, according to the Court, "the parties have purposes, generally opposed to each other, and the resultant decree embodies as much of those opposing purposes as the respective parties have the bargaining power and skill to achieve." Id. at 681-82. Accordingly, for purposes of enforcement, a consent judgment or decree should be construed and interpreted as a contract. Schurr, 719 F.2d at 574. The scope of a consent judgment "must be discerned within its four corners, and not by reference to what might satisfy the purposes of one of the parties to it." Armour & Co., 402 U.S. at 681-82. If the language utilized has only one reasonable interpretation, then the court must read the decree in accordance with its "plain meaning" or "explicit language." Berger v. Heckler, 771 F.2d 1556 (2d Cir. 1985). If, however, the wording is susceptible to more than one reasonable construction, then the court will look to extrinsic evidence, as is the case with ambiguous contracts. United States v. American Soc'y of Composers, Authors and Publishers, 782 F. Supp. 778, 788 (S.D.N.Y. 1991), aff'd, 956 F.2d 21 (2d Cir. 1992), cert. denied, 504 U.S. 914, 118 L. Ed. 2d 554, 112 S. Ct. 1950 (1992). "Reliance upon certain aids to construction is proper, as with any other contract. Such aids include the circumstances surrounding the formation of the consent judgment, any technical meaning words used may have had to the parties, and other documents expressly incorporated in the decree." United States v. ITT Continental Baking Co., 420 U.S. 223, 238, 43 L. Ed. 2d 148, 95 S. Ct. 926 (1975). Further, the Supreme Court has ruled that terms in a consent decree may be interpreted in light of "the circumstances surrounding the formation of the consent order."
ITT Continental Baking Co., 420 U.S. at 238; see United States v. American Cyanamid Co., 719 F.2d 558, 564 (2d Cir. 1983) (stating that "when the language of a consent decree provision is not clear on its face, a court of equity may, in construing the provision, consider the purpose of the provision in the overall context of the judgment at the time the judgment was entered"), cert. denied, 465 U.S. 1101, 80 L. Ed. 2d 127, 104 S. Ct. 1596 (1984). This reference to extrinsic evidence in ITT encompasses not only traditional parol evidence but also any meaningful indicia of the purpose of the contested provision. American Soc'y of Composers, Authors and Publishers, 782 F. Supp. at 788.
Paragraph 2 of the Consent Judgment is clear and unambiguous: defendant is to pay plaintiff "fifty cents for each cassette or other type of tape." Neither plaintiff nor Mr. Shulman has presented a convincing argument that Paragraph 2 is susceptible to more than one interpretation or that it is a misstatement of the parties' shared intentions regarding the payment of royalties. Rather, Mr. Shulman relies on tenuous extrinsic evidence in an effort to controvert the plain meaning of that provision. As support for his decision to award royalties on the basis of masters recorded, Mr. Shulman cites the fact that in 1965, AVP sold defendant reels of tape containing only one master. In his view, this establishes that in 1975 the parties must have intended that "one master only would be used to reproduce a cassette, with the same subject reproduced on both sides." Shulman Aff. at 61. Mr. Shulman concludes that because defendant departed from this understanding by marketing cassettes which reproduced more than one master, he is justified in assessing additional royalties.
The evidence upon which Mr. Shulman relies is far from persuasive, and his conclusion as to the parties' intentions is belied by defendant's submissions.
Eye Gate's 1971 catalogue indicates Eye Gate's practice of packaging two complete recordings on one double-sided cassette. 1971 Eye Gate Catalogue at 1, attached to Radin Reply Aff. as Exh. 231. Similarly, Eye Gate's 1973 catalogue states: "One cassette serves two filmstrips -- two sides." 1973 Eye Gate Catalogue, inside cover, attached to Radin Aff. as Exh. 184. Moreover, AVP's June 1975 deposition of Robert F. Newman, Eye Gate's former president, suggests that plaintiff's attorney was aware of the royalty implications associated with Eye Gate's practice of marketing cassettes that contained recordings on two sides. Newman Deposition of June 16, 1975, at 102, attached to Shulman Reply Aff. as Exh. 6. Based on the foregoing, we decline to adopt Mr. Shulman's reading of Paragraph 2, which substantially modifies the plain meaning of that provision to suit plaintiff's interests. Applying Mr. Shulman's formula as modified to reflect a $ 0.58 average cassette price but without multiplying by 1.9, the amount to which plaintiff is entitled pursuant to Mr. Shulman's regular royalty audit is $ 13,271.50.
d. The Missing Check Audit
Mr. Shulman now accepts defendant's claim that it has located twenty-three checks that Mr. Shulman treated as missing in his Revised Report. Shulman Aff. at 75. In addition, Mr. Shulman does not appear to dispute that an additional ninety-six of the missing checks at issue were never drawn upon. Last, Mr. Shulman seems to agree with defendant that it drafted 360 of the 906 missing checks prior to the beginning of the period subject to Mr. Shulman's audit. Shulman Aff. at 74-75. Mr. Schulman improperly concluded that "royalties for those missing checks falling within Mr. McCune's audit period of August 1, 1971 through April 30, 1973 are justified, because of Mr. McCune's failure to implement an alternative method that would deal with the large number of missing vendor invoices." Schulman Aff. at 74-75. Mr. Shulman's mandate, as he acknowledges, was to examine the period from May 1, 1973 to June 30, 1975. Revised Report at P 17. Mr. Shulman's recomputation of royalties based on missing checks that were issued during the period covered by the Arthur Andersen audit exceeded his authority and is a nullity. The royalty amount for that period has been exhaustively and decisively litigated and is not open to reconsideration.
Of the remaining 427 checks, defendant has identified 121 checks for which it claims that the payee and amount of purchase can be deduced through reference to check numbers, Eye Gate bank statements, voucher registers, check registers, and invoices. According to defendant, Mr. Shulman should not have included these checks in his missing-check assessment. Unfortunately, neither plaintiff nor Mr. Shulman squarely addresses these substantive assertions. Instead, Mr. Shulman responds by alleging that defendant's expert lacks impartiality and that the expert's findings are therefore inherently unreliable. Mr. Shulman also argues: "Many of the assumptions are invalid or rely on inadequate back up supporting documentation. Either a check is missing or it is not missing. Coming up with amounts and assuming they represent missing checks without the evidence of a hard copy of a check is inadequate." Shulman Aff. at 76. We cannot agree with Mr. Shulman's demand that he be presented with a "hard copy" if, as defendant contends, the payee and amount of the missing checks can be reliably identified through recourse to voucher registers, bank statements, and the remaining check disbursement books. Moreover, Mr. Shulman has identified no specific flaws in defendant's analysis that would warrant rejecting defendant's conclusions.
Defendant's conclusions with respect to the 121 missing checks appear to be reasonable, and Mr. Shulman's conclusory responses do little to convince us otherwise. Shulman Aff. at 78. Absent any persuasive argument to the contrary, we accept defendant's claim that the number of missing checks should be further reduced by 121.
However, in the interest of reaching a final resolution of this matter, we find it appropriate that Mr. Shulman included in his missing-check audit the 221 checks that defendant contends were written after June 30, 1975. Regardless of when defendant issued these checks, if they represent payments for royalty cassettes, which defendant does not now dispute, plaintiff is entitled to royalties. Thus, we find that the total number of missing checks is 306. Applying Mr. Shulman's formula, as modified to reflect a $ 0.58 average cassette price, but without multiplying by 1.9 for the reasons discussed above, we calculate the amount owed on the cassettes covered by the missing checks to be $ 48,141.
e. Double Counting
Defendant contends that "the missing check calculation performed by Mr. Shulman on top of the royalty audit forces Manor Care to pay royalties twice for the same royalty cassettes: once, by determining the royalties based upon available documentation and projections, and a second time using the missing check listing. This is double counting." Cenco Reply Mem. at 65. We disagree. Mr. Shulman found, and defendant does not dispute, that more than eighty percent of the relevant invoices are missing, as are a significant number of potentially relevant checks and all of the cash disbursement books for transactions prior to February 1976. Findings and Conclusions of Magistrate Judge Sinclair dated July 23, 1981, at 9-10. Given the limited universe of relevant documents, Mr. Shulman's recourse to alternative methods of assessing the number of royalty cassettes that defendant received was reasonable. Arthur Andersen's decision with respect to its audit of the 1971-1973 period not to follow a similar course is irrelevant and not binding upon Mr. Shulman.
In his regular royalty audit, Mr. Shulman tallied the amounts of all of the voucher-register entries reflecting defendant's purchases of cassettes during the relevant period. Based on this sum, Mr. Shulman followed the steps described above and concluded that defendant owed plaintiff royalties in the amount of $ 47,865 for 50,384 previously uncounted cassettes. By contrast, through his missing-check analysis, Mr. Shulman sought to quantify the number of cassettes that defendant purchased with checks that are no longer available and apparently were not recorded by check number in the voucher register.
Mr. Shulman concluded that plaintiff was entitled to royalties for an additional 324,197 cassettes. Mr. Shulman's two approaches are not clearly duplicative and, in the aggregate, represent Mr. Shulman's opinion of the total number of cassettes for which additional royalties would have been due had all of defendant's documents been available. As discussed above, defendant argues that it has identified many of the missing checks through reference to the extant records. Having accepted most of defendant's claims in this regard, we find that any risk of double counting inherent in Mr. Shulman's approach is minimal.
3. The Filmstrip Comparison
Paragraph 11 of the Consent Judgment provides:
If Cenco shall have a new filmstrip prepared covering the same subject matter as a filmstrip for which Audiovisual furnished an original master tape using a script created by Audiovisual solely at its own expense and such new filmstrip shall incorporate frames duplicating more than 25% of the frames in such original filmstrip, Cenco shall pay to Audiovisual an amount equal to fifty cents for each cassette or tape purchased by Cenco for sale in connection with such filmstrip.