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TVT RECORDS & TVT MUSIC v. ISLAND DEF JAM MUSIC GROUP

May 21, 2003

TVT RECORDS & TVT MUSIC, INC., PLAINTIFFS, AGAINST THE ISLAND DEF JAM MUSIC GROUP AND LYOR COHEN, DEFENDANTS.


The opinion of the court was delivered by: VICTOR Marrero, United States District Judge.

DECISION AND ORDER
During the damages phase of the trial of This matter, defendants Lyor Cohen ("Cohen") and The Island Def Jam Music Group ("IDJ" and, collectively with Cohen, the "Defendants") moved this Court for an order pursuant to Rule 50(a) of the Federal Rules of Civil procedure for judgment as a matter of law. The Court heard arguments from the Defendants and from plaintiffs TVT Records and TVT Music, Inc. (collectively, "TVT) on the matter on May 1, 2003 and reserved judgment on the motion, indicating that it would set forth its findings, conclusions and reasoning following the jury's verdict. The Court also received and reviewed Defendants Rule 50(a) Motion (undated) on May 1, 2003 and Plaintiffs' Opposition to Defendants' Motions Pursuant to FRCP 50(a) dated May 6, 2003. On May 2, 2003, the jury returned a verdict awarding damages on all of TVT's claims it was asked to consider.

At this time, the Court will briefly address the Defendants' Rule 50(a) motion. For the reasons discussed below, the Defendants' motion for judgment as a matter of law pursuant to Rule 50(a) of the Federal Rules of Civil Procedure is denied.

I. DISCUSSION

A. STANDARD OF REVIEW

Rule 50(a) of the Federal Rules of Civil Procedure allows a party to move for judgment as a matter of law at any time before the case has been submitted to the jury. See Wimmer v. Suffolk County Police Dept, 176 F.3d 125, 134 (2d Cir. 1999) A motion filed pursuant to Rule 50(a) may be granted if there is no legally sufficient evidentiary basis to support the nonmoving party's claim or defense. See Fed.R.Civ.P. 50(a); Wimmer, 176 F.3d at 134; Piesco v. Koch, 12 F.3d 332, 340 (2d Cir. 1993); Sanders v. The City of New York, 200 F. Supp.2d 404, 406 (S.D.N.Y. 2002). In assessing the merits of such a motion, courts must view the evidence in the light most favorable to the non-moving party and draw all reasonable inferences in its favor. See Wimmer, 176 F.3d at 134; Piesco, 12 F.3d at 340; Sanders, 200 F. Supp.2d at 406.

B. COMPENSATORY DAMAGES

1. Breach of Contract

With respect to TVT's claim of breach of contract against IDJ, TVT upon a proper showing is entitled to special damages in the form of lost profits from the CMC Album adjusted in accordance with the relevant profit sharing arrangements, the details of which are in evidence. In this regard, relevant evidence includes TVT's expert testimony by Bruce Kolbrenner ("Kolbrenner") and David Berman ("Berman") regarding the projected value of the CMC Album which the jury can reasonably credit to arrive at an award on this claim with reasonable certainty against IDJ. In particular, Kolbrenner's testimony and report presented sales, revenues, and profit projections reflecting alternative assumptions among which the jury would select based on the broader evidence before it, including testimony of CMC Album marketplace performance offered by, among others, Irv Gotti ("Gotti"), Berman, Steve Gottlieb ("Gottlieb"), and Kolbrenner himself. A jury could reasonably conclude, furthermore, based on evidence of Cohen's and IDJ's history and experiences in the record industry, that they did or should have contemplated these losses during 2001-2002, which, according to the jury's findings during the liability phase of this trial, was the period during which the Side Letter Agreement was formed and then breached by IDJ.

2. Tortious Interference With Contractual Relations

With respect to TVT's claim of tortious interference with contractual relations, TVT is entitled to the monetary loss of the benefits of the Heads of Agreement. Once again, relevant evidence includes Kolbrenner's and Berman's testimony and expert reports regarding the projected value of the CMC Album which the jury can reasonably credit to arrive at an award with reasonable certainty against Cohen and IDJ. Taken together with other evidence of marketplace performance offered by, among others, Gotti and Gottlieb, a jury could reasonably isolate and credit one of the alternative projections offered by Kolbrenner to determine a proper award. Accordingly, the Defendants' position that the evidence cannot support with reasonable certainty a finding of damages for tortious interference with contractual relations must be rejected.

3. Lost Profits and Goodwill

With respect to TVT's claims for breach of contract and tortious interference with contractual relations, TVT seeks special damages for loss of goodwill. Goodwill is the intangible business value reflecting the basic human tendency of the consuming public — here, both album purchasers and artists, as well as other commercial entities — to do business with TVT. In this vein, the relevant evidence includes testimony and documents establishing the existence of advertisements indicating a forthcoming CMC Album release by TVT in November 2002, and, clearly, the CMC Album has not yet been released or marketed. While the extent of the impact of missed release dates has been the subject of dispute, it is clear that TVT's assertion of some harm to its public image can reasonably be credited. For instance, the evidence includes testimony by Gottlieb of the loss of TVT's credit line as a result of the disruption of TVT's cash flow resulting from the CMC Album not being released as expected. Though Defendants presented evidence that TVT's goodwill and financial condition may have been impaired by difficulties and related litigation that one of its affiliated entities had faced with one of its lenders prior to the parties' dispute over the CMC Album, the principle of causation requires that Defendants' conduct be only a proximate cause of TVT's damage, not the only cause. Thus, a reasonable jury could find that even if TVT had already suffered some loss of goodwill from other events unrelated to the Defendants' wrongs here, the damage in question could have been substantially aggravated by Defendants' actions, or indeed that Defendants' conduct was a contributing cause or the actual cause of the harms in question. Moreover, the jury could also credit testimony that the financial difficulties and collateral litigation with the other lender referred to above pertained cc and primarily affected not TVT but the affiliate entity that was actually involved.

Additionally, a jury can reasonably credit testimony by Gottlieb of damage to his business relationship with Gotti, a highly successful producer who is able to provide to business partners his own talent as well as that of other artists with whom he has relationships. A reasonable jury can also credit this testimony as a basis to conclude that TVT's general business reputation has suffered as a result of IDJ's and Cohen's interference and TVT's not having been able to release the particular product at issue, the CMC Album. Furthermore, a jury can rationally infer that the Defendants understood and should have foreseen such harm to TVT's goodwill throughout 2001-2002, the relevant time period during which the acts of breach of contract and interference occurred, given the evidence of Defendants' own lengthy history and experience in the record business.

4. Fraud By Fraudulent Concealment

Regarding TVT's claims for damages relating to fraud by fraudulent concealment, TVT is entitled to recover its out-of-pocket expenses corresponding to monies TVT expended by reason of its reliance on the Defendants' acts of concealment. Relevant evidence of such monies includes expenses incurred as advances to the artists pursuant to the Heads of Agreement, studio expenses paid by TVT for the recording of materials for the CMC Album, and advertising costs to promote the album. Accordingly, the Court concludes that the record allows for a determination of compensatory damages with reasonable certainty pursuant to TVT's claim of fraud by fraudulent concealment as against both Cohen and IDJ.

5. Copyright Infringement

With respect to TVT's copyright infringement claims, the relevant evidence includes business records reflecting sales figures and revenues generated by the "Irv Gotti Presents: The Inc." CD and DVD. While the record includes some dispute as to the interpretation of these materials and to the amount of profits realized, if any, a jury can reasonably interpret these records as indicating the receipt of profits that can then be allocated to the infringed material as the jury rationally deems appropriate. Furthermore, with respect to "Get Tha Fortune," there is no reason to conclude that the jury would be unable to reasonably arrive at an appropriate damages figure within the statutory range set by the Copyright Act. For these reasons, IDJ's and Cohen's motions to dismiss TVT's claim for compensatory damages pursuant to IDJ's and Cohen's copyright infringement are denied.

C. PUNITIVE DAMAGES

1. Malice and Recklessness or Gross, Wanton, or Willful Conduct

Turning now to the matter of punitive damages, the Court begins by noting that the matter of the availability of such damages is not the proper subject of the present motion, and that matter has already been addressed elsewhere. With respect to the sufficiency of the evidence in support of punitive damages, the Court concludes that the record contains sufficient evidence to permit a reasonable jury to find that IDJ's and Cohen's actions were malicious and reckless or gross, wanton, or willful. Three series of activities predominantly support such a finding, in the Court's view.

First, the CMC Album project clearly presented IDJ and Cohen with a delicate business decision given their exclusivity relationships with Ja Rule and Gotti. Nonetheless, there is sufficient evidence from which a jury can reasonably conclude that the Defendants, without regard to the consequences for TVT, responded to this business development by deliberately subordinating TVT's contractual rights pursuant to the Heads of Agreement with the artists in order to placate the artists pending their contract renegotiations with IDJ, all the while never intending to satisfy their own representations of cooperation with and assent to the CMC Album project. Such evidence includes, among other things: a credibility analysis the jury must make as between the characterization of these events by Gottlieb and Cohen in light of the instances in which Cohen's trial testimony was impeached with his own prior statements; testimony of William Leibowitz ("Leibowitz"), TVT's counsel, who testified that he received assurances of IDJ's assent to the Side Letter Agreement from Jeffrey Kempler ("Kempler") and IDJ attorney William Lieberman, when taken together with both the lack of a response to TVT's November 15, 2001 so-called "reliance letter" by IDJ and IDJ's August 14, 2002 letter to Leibowitz purporting to reject the Side Letter Agreement (as though IDJ had never assented to it); and the timing of this August 14, 2002 letter being delivered days after Ja Rule's contract had been renegotiated (Gotti's contract was renegotiated in late 2001 and through early 2002). Additional reasons are set forth in sections I.B and I.E of this Court's Decision and Order dated April 8, 2003, which discuss the sufficiency of the evidence supporting a finding of liability or TVT's claims of breach of contract against IDJ and fraud by fraudulent concealment against IDJ and Cohen in the context of the Defendants' prior Rule 50(a) motion during the liability phase of the trial of this matter.

Second, the evidence, including testimony by Kempler regarding IDJ's renegotiation of Ja Rule's services contract as well as the plain language of the amended contract itself and its various versions, can support a reasonable inference that, at least in and around August of 2002, IDJ led or encouraged the artists to obtain the CMC Album materials for release by IDJ rather than TVT. In addition, Gotti and others testified that in the first version of Ja Rule's "The Last Temptation" solo album Gotti produced for IDJ, he included or sought to include some of the songs that had been recorded and intended for the CMC Album, the production costs of which TVT had paid.

The third basis concerns the recent deliveries or attempts at delivery of materials for the CMC Album on February 26, 2003 and April 25, 2003, along with surrounding activities such as IDJ's waiver of exclusivity to the services of Ja Rule and Gotti first expressed to TVT by Cohen in late February and early March 2003. The parties dispute the significance of these transactions. IDJ and Cohen argue that these activities represent good faith cooperation and satisfaction of the Defendants' obligations to TVT. TVT claims that these actions, rather than reflecting any reasonable opportunity to mitigate, represent a continued pattern of coordinated litigation tactics designed to deprive TVT of due compensation while simultaneously denying TVT any meaningful benefit of the Heads of Agreement. In support of the latter interpretation, the relevant evidence includes the date of the February 26, 2003 delivery being so close to the commencement of this trial's liability phase, as well as the April 25, 2003 delivery of updated CMC Album materials to Gottlieb's apartment on the Friday preceding the commencement of the damages phase on Monday April 28, 2003. Accordingly, particularly in light of the parties' prior dealings indicated by the record, not only can a jury reasonably reject the Defendants' argument, on this evidence, that TVT missed a reasonable opportunity to mitigate, but it can also, by the same reasoning, conclude that the Defendants' acts of purported delivery were in fact a continuation or extension of bad faith, self-serving tactics perpetrated at the continued expense of TVT.

In other words, a rational jury may construe these actions as continued efforts by the Defendants to frustrate TVT's contractual rights under the Heads of Agreement by forcing TVT to accept, under the guise or mitigation of damages, a rushed CMC Album with no meaningful opportunity by TVT to participate in or comment on its composition. A jury can therefore conclude that the public interest is furthered by punishing, and thus deterring, such conduct to protect the integrity of business dealings as well as to discourage manipulation of legal processes and forums the laws creates to fairly resolve civil disputes. Indeed, Cohen's equivocation during his damages phase testimony concerning his role in the breach of the Side Letter Agreement and interference with the Heads of Agreement, and his somewhat ambiguous explanation as to what he would have done differently, may be interpreted by a rational jury as evidence that he and IDJ would not be deterred from repeating such conduct in the future absent further penalty beyond compensatory damages.

These series of transactions — the apparent concealment of motives in 2001-2002, the renegotiation of Ja Rule's services contract with IDJ, and the recent deliveries of putative CMC Album materials — involved the actions of not only Cohen, Chairman of IDJ, but also, among others, Kempler, IDJ's Senior Vice President of Business and Legal Affairs, who, for example, signed then crossed out his signature on the Side Letter Agreement and who later signed certain correspondence allegedly constituting or completing deliveries of CMC Album materials on the eve of the damages phase of trial. In this vein, corporate documents in evidence indicate that both Cohen and Kempler enjoy management control over the administrative and operational activities of Murder, Inc., in whose name the recent deliveries and surrounding actions occurred. The documentary and testimonial evidence establishing these overall activities could permit a jury reasonably to conclude that any malice and recklessness or any gross, wanton, or willful conduct discussed above could be attributed not only to Cohen but IDJ as well.

2. Conduct Aimed at the Public Generally

The Defendants dispute the sufficiency of TVT's evidence that Cohen's and IDJ's actions in question reflect a fraud not only upon TVT but also affecting the public generally. In the context of punitive damages awarded pursuant to TVT's claim for fraud by fraudulent concealment, a claim that the jury sustained during the liability phase, such an award need not be based on a showing of conduct aimed at the public generally. The case law to this effect is clear.*fn1

Less clear is whether a public aim is necessary to award punitive damages pursuant to TVT's claim for breach of contract against IDJ, which the jury also sustained during the liability phase, when that claim involves, as here, an independently actionable tort in the form of a fraud. IDJ contests the propriety of punitive damages for breach of contract in this case on this basis, arguing that TVT has not presented competent evidence that the Defendant's wrongful conduct was directed at the public in general.

During the Court's conferences with the parties regarding the proposed jury instructions and at the time Defendants initially made their Rule 50(a) motion, the Court voiced some doubts and reservations concerning whether a sufficient record existed to send this damages claim to the jury in light of the prerequisites, in particular, questions concerning the "public aim" element. The Court's doubts were grounded on uncertainties, confusion and contradiction it found in New York law in respect of this aspect of the requirements to support punitive damages for breach of contract. Some cases indicate that conduct directed at the public in general is required. Others suggest that the standard applies in the alternative to extraordinarily culpable behavior. Still other rulings have sustained such punitive damages awards absent any mention of such a prerequisite. None provides a precise definition or delimiting instructions as to what the public aim standard encompasses or guidance as to what it is designed to achieve.

Several leading New York Court of Appeals cases address this matter. See New York Univ. v. Cont'l Ins. Co., 662 N.E.2d 763 (N.Y. 1995); Rocanova v. Equitable Life Assurance Society of the United States, 634 N.E.2d 940 (N.Y. 1994) Gordon v. Nationwide Mut. Ins. Co., 285 N.E.2d 849 (N.Y. 1972); Walker v. Sheldon, 179 N.E.2d 497 (N.Y. 1961). These decisions have at times been interpreted, both by New York courts and federal courts of this District and Circuit, as requiring, among other things, in addition to morally reprehensible, wanton dishonesty, conduct aimed at the public in general.*fn2 These same cases have been interpreted, again, by courts both of New York and of this District and Circuit, as requiring a showing of heightened morally reprehensible, ...


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