The opinion of the court was delivered by: Buchwald, District Judge.
Plaintiff Point Productions A.G. ("Point" or "plaintiff") has
brought this action for breach of contract against defendant
Sony Music Entertainment, Inc. ("Sony" or "defendant"), claiming
that, on January 21, 1993, defendant wrongfully terminated a
licensing agreement the parties entered into on August 28, 1991
(the "Agreement"), because Sony failed to give Point notice of
and an opportunity to cure alleged breaches. In an Opinion and
Order dated July 20, 2000, we granted plaintiffs motion for
summary judgment on liability, ruling that Sony had improperly
terminated the Agreement in January 1993. Point Prods. A.G. v.
Sony Music Entertainment, 2000 WL 1006236 (S.D.N.Y. 2000).
Discovery having been concluded, Sony has now moved in limine to
limit evidence of plaintiffs damages at trial to the period
before plaintiff declared bankruptcy on August 30, 1995, and to
exclude the testimony of one of plaintiffs proposed damages
experts, Graham Churchill. For the reasons discussed below,
defendant's motion to limit evidence of the plaintiffs lost
profits damages is granted, and therefore we need not reach
defendant's motion to preclude.
The facts surrounding the formation and termination of the
Agreement are set out in our Opinion and Order of July 20, 2000.
More relevant to the present motions is that, after signing the
Agreement with Sony in August 1991, the affiliated companies of
the Phonomatic Group A.G., including Point, suffered a series of
financial setbacks and that Point itself ultimately declared
bankruptcy in 1995.
Point was part of the Phonomatic Group, which consisted of a
series of intricately connected companies, from several
countries, at all levels of the production and distribution
chains of the music industry. Plaintiff was a Swiss company that
obtained licenses, such as the one at issue in this case, to
reproduce and sell music.*fn2 Its sister companies, which
carried out similar functions within the Phonomatic Group,
included a Dutch company, Point Productions B.V., an American
company, Point Productions, Inc., and Point Classics ("Point
The Point affiliates used other Phonomatic companies to both
manufacture and distribute their products. The manufacturing
affiliates included Sonortape Nederland B.V. ("Sonortape") and
Merit Manufacturing ("Merit"). Merit manufactured much of
plaintiffs product and apparently was the most profitable
Phonomatic subsidiary, providing working capital for the other
affiliaties. Affidavit of Wilhelm Mittrich ("Mittrich Aff.") ¶
3a. At the
time the Agreement was signed, Sonortape had entered into a
mechanical license agreement with Stichtung Stemra ("STEMRA"),
the Dutch performing rights society, on behalf of entire
Phonomatic Group. Deposition of Wilhelm Mittrich ("Mittrich
Depo."), at 166:8-15. The license enabled all Phonomatic
affiliates to lawfully manufacture and distribute copyrighted
recordings anywhere in the European Union. Sonortape
subcontracted the actual manufacturing of its compact discs to
CD Music Pressing, which was, in turn, partially owned by
Phonomatic. Sonortape "did the printing, packaging, licensing,
warehousing and was, to the outside, the manufacturer." Id. at
173:23-174:7. It is not clear from the record whether Merit
actually manufactured compact discs, or whether it, like
Sonortape, outsourced this work.
Other Phonomatic companies handled the distribution and sales
of the music licensed by the Point affiliates. Point Logistics
was the "central warehousing and physical distribution company
for the Phonomatic Group." Id. at 74:3-5. The Phonomatic Group
also had its own sales affiliates. For example, plaintiffs
predecessor, MCR, made 75% of its sales to Phonomatic
affiliates, known as Sound Solutions. The other 25% of its sales
were in countries where Phonomatic did not have a distribution
company. Id. at 88:25-89:16.
The Phonomatic companies also shared common ownership. The
multiple layers of ownership enabled the affiliated companies to
set off profits and losses under Dutch law, reducing their tax
liability. Id. at 84:6-16. For example, Point was 100% owned
by Phonomatic Group A.G. Id. at 83:2-5. Point Productions B.V.
was 100% owned by Laser Records B.V., which was 100% owned by
Blazer Records, which, in turn, was 100% owned by Phonomatic.
Id. at 83:6-15. Point Classics was 75% owned by Phonomatic.
Id. at 81:10-14. Point Productions, Inc. was wholly owned by
Phonomatic and its American subsidiary. Id. at 83:16-84:5. In
sum, the Phonomatic Group consisted of closely-associated
companies with overlapping ownership. The entire group was
controlled by Wilhelm Mittrich, plaintiffs former general
manager, who owned approximately 50-60% of the shares of
Phonomatic in 1992. Mittrich Depo. at 82:20-22.
Point's financial troubles began in November 1992, when STEMRA
terminated Sonortape's mechanical copyright license over
disputed royalty payments. STEMRA applied this termination to
all Phonomatic companies, including Merit, thus preventing Point
from making any legal music reproductions. Sony relied on
STEMRA's action to terminate the Agreement with Point, which
obligated Point, under § 3.04, to maintain a valid mechanical
copyright license. On October 14, 1994, Sonortape apparently won
its appeal to the Dutch Supreme Court, which held that STEMRA
wrongfully terminated the license, although the parties dispute
the actual significance of that decision. See Point Prods.,
2000 WL 1006236, at *2 n. 7. Regardless of the ultimate outcome,
the initial termination required Point to obtain a new
mechanical license in order to continue operations. Moreover,
shortly after STEMRA's termination of the Sonortape license, in
January 1993, Point was expelled from MIDEM, an annual music
industry trade show attended by 8,000 to 10,000 participants
from all over the world, amid allegations of copyright
violations. According to Mittrich, the MIDEM trade show is very
important for proper product marketing. Consequently, the MIDEM
expulsion adversely affected Point's ability to market its
products. Mittrich Depo. at 805:24-807:3.
Amidst Point's troubles with obtaining a copyright license and
its MIDEM expulsion, many of Point's affiliates within the
Phonomatic Group were in severe financial difficulties. Merit,
the manufacturer for Point, entered bankruptcy in November 1993.
As noted earlier, Merit was the most profitable company of the
Phonomatic Group and generated working capital upon which its
affiliates depended. Phonomatic itself, plaintiffs parent
company, went bankrupt in December 1993. As of June 30, 1992,
Phonomatic owed Point 6.5 million Swiss Francs.*fn3 Also in
December 1993, Point Logistics, plaintiffs warehouse and
distribution affiliate, went bankrupt, and its creditors seized
"a couple of million CDs and tapes" that were held by Point
Logistics for plaintiff. Mittrich Depo. at 75:7. As a result,
plaintiff was unable to sell the inventory that had been in
Point Logistics' warehouses. In early 1994, Phonomatic's
bankruptcy resulted in Point's placement into receivership.
Point ceased operations in October 1994. Mittrich Aff. ¶ 3.
Finally, in August 1995, Point itself filed for bankruptcy in
In the Swiss bankruptcy court, Point's legal representative,
Walter Studer, identified the collapse of the Phonomatic
companies as having a "negative influence" on Point. Affidavit
of Walter Studer ¶ 6. Indeed, this was the only reason listed on
the bankruptcy report of the Swiss Court. Rossi Decl. Ex. C.
We granted plaintiffs motion for summary judgment on liability
on the grounds that Sony's termination of the Agreement
constituted a breach of contract because Sony failed to provide
Point with notice and an opportunity to cure. Point Prods.,
2000 WL 1006236, at *5. After that ruling, the parties completed
discovery. On February 15, 2002, Sony filed two motions in
limine: the first seeks to exclude any evidence of lost profit
damages claimed for the period after plaintiff declared
bankruptcy; the second seeks to preclude ...