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PERRY v. MCGRAW-HILL

June 6, 1997

GAIL PERRY, Plaintiff,
v.
McGRAW-HILL, INC., Defendant.



The opinion of the court was delivered by: OWEN

 OWEN, District Judge

 Plaintiff is the widow of Dr. Robert Perry, who was the editor of the Chemical Engineers' Handbook until his death. In 1956, Dr. Perry, his co-editors at that time, and defendant-publisher McGraw-Hill signed a one page agreement governing the Handbook's publication. The 1956 Agreement was in force when Dr. Perry died in 1978, at which time he was preparing the Handbook's sixth edition. Plaintiff became the successor-in-interest to Dr. Perry's rights in the Handbook. In 1980, she and defendant agreed to amend the 1956 Agreement with respect to the sixth and all future editions. It is important to note that both the 1956 Agreement and the 1980 Amendment are silent as to which party has control over the marketing and promotion of the Handbook.

 Plaintiff's suit alleges breach of the contractual duty of good faith and fair dealing with regard to marketing the Handbook. Defendant moves for summary judgment on the first cause of action of the amended complaint.

 Plaintiff asserts her first cause of action under two theories. First, plaintiff asserts that the prior course of dealing in writing between Dr. Perry and defendant under the 1956 Agreement established Dr. Perry's contractual right to control the marketing of the Handbook and that this right of control survived the 1980 Amendment. She claims the right was later violated by defendant, namely by instituting immediate sales to book clubs, immediate direct marketing sales, promotional/discount sales and sales of International Student Editions in "developed foreign countries". Under plaintiff's second theory she alleges that she signed the 1980 Amendment in October of that year in reliance on a statement made by defendant in a May 1980 letter regarding its plans for direct mail sales. She alleges that this statement has the force of a contractual promise and that it was breached by defendant's subsequent decision to emphasize direct mail sales, which pay a lower royalty than sales through other mediums. I will address each theory in turn, noting at the outset that they both require me to decide as a matter of law what conclusion to draw from contractual silence regarding who, as between Dr. Perry and defendant, has the right to control the marketing and promotion of the Handbook.

 The interpretation of a contract is generally a question of law to be determined by the district court. Goodheart Clothing Co., Inc. v. Laura Goodman Enterprises, Inc., 962 F.2d 268, 273 (2d Cir. 1992). "A contract must be interpreted to give effect to the intent of the parties." U.S. v. Liranzo, 944 F.2d 73, 77 (2d Cir. 1991). "Where the language of a contract is unambiguous, the parties' intent is discerned from the four corners of the contract." Id. at 77. "The determination of whether contract language is ambiguous is a question of law." Werbungs Und Commerz Union Austalt v. Collectors' Guild Ltd., 930 F.2d 1021, 1025 (2d Cir. 1991).

  When the 1956 Agreement was signed, defendant did not yet have its Chemical Engineers' Book Club ("Book Club"). After defendant established the Book Club, it wanted to include the Handbook as a selection, but felt that the royalty it would have to pay Dr. Perry under the 1956 Agreement made it economically infeasible to do so. *fn1" Plaintiff has submitted a series of letters which defendant and Dr. Perry exchanged from August 1973 through April 1974 regarding defendant's use of the Handbook in the Book Club. *fn2" The first piece of correspondence plaintiff proffers is a form letter from defendant to Dr. Perry dated August 21, 1973 which reads in part:

 
I think you'll be as pleased as I to learn that our Book Club Program would very much like to use the new fifth edition of your CHEMICAL ENGINEERS' HANDBOOK as an offering in the Chemical Engineers' Book Club very soon. No doubt you'll recall that we have been offering the fourth edition to Club members for the past few years. . . .
 
Our present arrangement is to pay you--on the extra sales achieved through the Club efforts--one-half your current royalty rate, based on the net price of the book to members. The reason for a lower royalty rate at all is, of course, that the book clubs must offer subscribers a discount. In addition, the cost of book club sales is considerably higher than the cost of textbook sales and regular mail or trade sales. Thus, in book club sales, both the publisher and the author sacrifice a normal percentage per copy in return for increased dollar sales and royalties. This, as you know, is essentially the principle we have in effect for foreign sales, where we settle for less per copy in return for greater volume.
 
If this plan meets with your approval, I would appreciate your signing both copies of this letter and returning one copy to us.

 Plaintiff also points to the similar form letter that Dr. Perry finally agreed to sign in April 1977, along with his handwritten phrase "Permission does not include later editions." Plaintiff now claims that these and other letters create her continuing right to control the Handbook's marketing by virtue of an established custom and practice under the 1956 Agreement and that defendant's subsequent marketing decisions violated that right.

 Defendant responds that although the letters reflect a courtesy defendant extended to certain important authors by asking to use their book as a Book Club selection before actually doing so, they are in essence a request that Dr. Perry accept a lower royalty rate on such sales than provided for in the 1956 Agreement. Defendant observes that absent such consent, it was economically infeasible for McGraw-Hill to sell the Handbook through the Book Club. In fact, Dr. Perry's refusal to accede to such pleas until 1977 meant that defendant chose not to sell the Handbook through the Book Club, but this does not rise to the level of a contractual right to control marketing on the part of Dr. Perry, for obviously, McGraw-Hill could have marketed the Handbook in this area by paying Dr. Perry the full royalty but at a loss to itself.

 I conclude that the form letters offered by plaintiff do not constitute a course of conduct which established Dr. Perry's continuing contractual right to control the marketing of the Handbook. Further, even if the letters did establish such a right prior to the 1980 Amendment, that right did not survive the 1980 Amendment. This is clear not only from the 1980 Amendment itself but also from the conduct of plaintiff and communications with her then-attorney, Mr. John ...


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