June 2001. Musicmaker responded with eight affirmative
defenses and nine counterclaims. In October 2001, Profile moved for
summary judgment and for Rule 11 sanctions. In November 2001, Musicmaker
requested leave of the court to withdraw all of its previously pleaded
affirmative defenses and counterclaims and to interpose but one
affirmative defense and counterclaim alleging frustration of purpose.
Profile contends that Musicmaker's proposed defense of frustration of
purpose lacks merit and that the amendment would, therefore, be futile.
"[W]here, as here, the cross-motion is made in response to a
Fed.R.Civ.P. 56 motion for summary judgment, and the parties have fully
briefed the issue whether the proposed amended complaint could raise a
genuine issue of fact . . . the court may deny the amendment as futile
when the evidence in support of the. proposed new claim creates no
triable issue of fact." Milanese v. Rust-oleum Corp., 244 F.3d 104, ll0
(2d Cir. 2001).
Frustration of purpose arises when "[b]oth parties can perform but, as
a result of unforeseeable events, performance by party X would no longer
give party Y what induced him to make the bargain in the first place.
Thus frustrated, Y may rescind the contract." United States v. Gen.
Douglas MacArthur Sr. Vil., Inc., 508 F.2d 377, 381 (2d Cir. 1974). "The
basic test is whether the parties contracted on a basic assumption that a
particular contingency would not occur. . . . An analysis of the Facts is
crucial for the proper application of this doctrine." M & M Transp.
Co. v. Schuster Express, Inc., 13 B.R. 861, 869 (S.D.N.Y. 1981).
Musicmaker claims that it entered into the exclusive license to acquire
the sole rights to exploit certain live performances of The Who through
its custom-disc compilation service, and to capture income by being the
only place consumers who prefer to pick and choose the songs they desire
could go for these recordings. It claims that this exclusivity was key to
the contract and was the reason it was willing to pay the amount it paid
for those rights. Musicmaker further claims that this purpose was
frustrated and the rights granted to it were rendered utterly worthless
by the advent of file-sharing services such as Napster, which made
recordings of the live performances they contracted for available on the
internet free of charge. While Musicmaker admits that it was aware of the
existence of Napster prior to signing the contract, it claims that
neither Musicmaker nor "even the most experienced players in the [music]
industry" were aware of the "cataclysmic" effect it would have. Thus,
Musicmaker concludes, the effect of Napster and its ilk was wholly
unforeseeable, and that under the doctrine of frustration of purpose they
should be allowed to rescind the contract.
Profile counters that the possible effect of Napster was foreseeable at
the time the contract was signed on December 28, 1999. Profile observes
that not only does Musicmaker admit it was aware of Napster prior to
signing the contract, but in 1999, knowledge about Napster and similar
services was pervasive in the music industry, and that the RIAA, a trade
group that represents the U.S. recording industry, filed a highly
publicized suit against Napster — then seven months old — for
its blatant widespread copyright infringement three weeks before
Musicmaker signed the contract here. So, while it is obvious that Napster
did make a mess of a lot of things, so do many events in unpredictable
life, perhaps only partially perceived at the time, or even perceived.
That, however, does not a legal frustration of purpose make, and while
one can have a sympathetic emotional tug here, a contract
is a contract, and Profile has stood ready to perform.
For the above reasons, Musicmaker's motion for leave to amend its
answer is denied and I grant Profile's motion for summary judgment for
the last unpaid installment on its contract as stated, it has stood ready
to perform and Musicmaker's defense to its performance is legally
Profile also moves for sanctions under Fed.R.Civ.P.
Rule 11(b)(3) which provides:
By presenting to the court (whether by signing,
filing, submitting, or later advocating) a pleading,
written motion, or other paper, an attorney or
unrepresented party is certifying that to the best of
the person's knowledge, information, and belief,
formed after an inquiry reasonable under the
circumstances, the allegations and other factual
contention have evidentiary support or, if
specifically so identified. are likely to have
evidentiary support after a reasonable opportunity for
further investigation or discovery.
The rule is here demonstrably applicable. The original answer to the
complaint filed by Musicmaker on June 29, 2001, contained eight
affirmative defenses and 3 counterclaims and claims for punitive
damages. These claims, a few extensively stated many but conclusorily
stated in one or two sentences, were, as categorized in the complaint:
Failure to state a claim; Breach; Waiver; Estoppel; Fraud; Failure of
consideration: Setoff; Modification; Breach of covenant; Breach of the
implied covenant of good faith and fair dealing; Intentional
misrepresentation; Negligent misrepresentation; Recission: Conversion;
Accounting; Declaratory relief; Constructive trust; and punitive
damages. Some were "on information and belief," some were not. The
plaintiff's lawyers quickly communicated to defendant's counsel that all
the defenses and counterclaims were baseless and should be withdrawn.
calling them to their office for an informal meeting. They sent a
detailed followup letter on July 17, and brought it up in a Court
conference. They served, but did not file, a Rule 11 motion.
Nevertheless, Musicmaker waited a number of months until Profile had
made, served and filed an extensive summary judgment motion, whereupon it
withdrew every one of its affirmattve defenses and counterclaims, and
moved for leave to assert the single defense of "Frustration of Purpose,"
which has been denied earlier in this opinion.
In opposition to plaintiffs motions for sanctions, defendant's counsel
contends that Musicmaker ceased to do business on January 3, 2002, so
that by the time plaintiff filed the complaint there was no one left at
Musicmaker to whom counsel "could have resorted for information
concerning allegations in the complaint." Musicmaker's counsel also
asserts that "those employees he did manage to find were without
knowledge of facts and not willing to cooperate with counsel in mounting
a defense." Musicmakers's memorandum thereupon states that "counsel had
little to go on other than research conducted on the Internet which
formed the basis of pleadings and counterclaims and cross claims pleaded
in Musicmaker's answers."
That use of the Internet was the sole basis for the affirmative
defenses and counterclaims is confirmed by an affidavit put in by
attorney Jane Osborne McKnight, executed on January 23, 2002, in which
she, apparently Musicmaker's sole researcher, acknowledged
My factual investigation was necessarily restricted to
searching scores of Internet websites for information
about the materials licenses, the tour, the individual
artists (like Peter Townshend, Roger Daltry, and John
Entwistle) and related subjects. I also systematically
major national and regional newspapers and
wire service articles (on the proprietary NEXIS
database) concerning the same matters.
Ms. McKnight annexes all sorts of Internet printouts most of which have
no relevance to the numerous claims eventually made in the answer based
on her work. One that would appear to have some relevance is Exhibit 20,
which reads: "The World premier of this 2 hour internet/radio special was
webcast on April 13 through SFX.com. Viewable with Quick Time (or Media
Player) at SFX.com's website: The Who Live on Line [Special was still
available as of Oct 08th]" From the use of the word "webcast" in the
Internet printout above Ms. McKnight asserts that these "Fan sites for
The Who seemed to indicate that the archived concert tracks were
available for digital download for nearly one year." (emphasis added)