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Twelve Sixty LLC v. Extreme Music Library Limited

United States District Court, S.D. New York

January 9, 2018

TWELVE SIXTY LLC, ARON MARDEROSIAN, and ROBERT MARDEROSIAN, Plaintiffs,
v.
EXTREME MUSIC LIBRARY LIMITED, a division of Sony/ATV Music Publishing; EXTREME MUSIC LIMITED; VIACOM INTERNATIONAL INC.; NEW CREATIVE MIX INC.; and HYPE PRODUCTION MUSIC Defendants.

          OPINION & ORDER

          PAUL A. CROTTY, United States District Judge:

         Twelve Sixty LLC, Aron Marderosian, and Robert Marderosian ("Plaintiffs") bring this action against Extreme Music Library Ltd. and Extreme Music Ltd. ("Extreme Defendants") and Viacom International Inc. and New Creative Mix Inc. ("Viacom Defendants"), seeking royalties and licensing fees allegedly owed under the terms of a composer agreement. The Extreme and Viacom Defendants each move for an order limiting Plaintiffs' recoverable damages in their breach-of-contract claims and dismissing the remaining claims. For the following reasons, the motions are GRANTED in part and DENIED in part.

         BACKGROUND

         Aron and Robert Marderosian, professionally known as "Heavy Young Heathens, " have written and recorded hundreds of musical compositions used in television shows, movies, theatrical trailers, and video games. First Am. Compl. ("FAC") ¶ 1. On May 19, 2010, the Marderosians, acting through their company Twelve Sixty LLC, entered into a blanket composer agreement ("2010 Agreement") with New Remote Productions Inc. ("New Remote"), a Viacom subsidiary. FAC Ex. 1 at pp. 1, 12. The 2010 Agreement provided that Twelve Sixty LLC would deliver fifty songs to New Remote in exchange for a flat fee of $10, 000 and one-hundred percent of the "writer's share" of public performance royalties payable by performing rights organizations. Id. at pp. 3-4, 14, 16.

         On March 7, 2011, New Remote transferred all of its rights and obligations under the 2010 Agreement to another Viacom subsidiary, New Creative Mix Inc. ("New Creative"), and Plaintiffs entered into a new composer agreement ("2011 Agreement") with New Creative. FAC Ex. 3 at pp. 2-6. The 2011 Agreement provided that Plaintiffs would produce an additional thirty-five songs for New Creative in exchange for $20, 000 and one-hundred percent of the writer's share of public performance royalties. Id. ¶¶ 7.1, 7.4, Schedule A. The 2011 Agreement further obligated New Creative to register the songs with the appropriate performing rights organizations, which are responsible for collecting and distributing performance royalties. Id. ¶ 4.8. New Creative also had the right to exploit the Plaintiffs' songs as part of the Hype Music Library, a premium production music library jointly owned by Viacom and Extreme, which could be accessed by third-party licensees in return for a license fee. Id. ¶¶ 5.1, 1.5. If Plaintiffs' songs were exploited as part of the Hype Music Library, Plaintiffs were entitled to receive additional compensation in the form of fifty percent of "Gross Receipts, " defined as income actually received by Extreme or New Creative from licensing songs in the Hype Music Library. Id. ¶¶7.2, 1.4, 1.6, 12.

         The 2011 Agreement required New Creative or its assignees to issue biannual accounting statements to Plaintiffs and include payment of Plaintiffs' share of any Gross Receipts. Id. ¶ 8.1. It contained a contractual limitations period provision that required Plaintiffs to commence any action concerning an accounting statement within two years after the statement was rendered.

         This is the sole remedy provision, and it provides that the scope of any such action "shall be limited to a determination of the amount of [Plaintiffs'] share of Gross Receipts, if any, payable for the accounting periods in question, and [Plaintiffs'] sole remedy shall be the recovery thereof." Id. ¶ 8.2. It further provided that "[a]ll disputes arising under this Agreement shall be governed by the laws of the State of New York, and each of the parties submits to the exclusive jurisdiction of the federal and state courts of the State of New York." Id. ¶ 10.8.

         On September 27, 2016, Plaintiffs filed suit against the Extreme Defendants in the Central District of California. ECF 1. On February 22, 2017, the Central District of California transferred the case to this court, citing the choice-of-law and forum-selection clauses. ECF 26. On March 28, 2017, Plaintiffs filed the First Amended Complaint ("FAC"), which added the Viacom Defendants and Hype Production Music ("Hype") as parties. ECF 49.

         The FAC alleges that Defendants engaged in a fraudulent scheme to actively conceal thousands of exploitations of Plaintiffs' music, allowing Defendants to make millions of dollars without paying Plaintiffs what they were entitled to under the 2011 Agreement. FAC ¶¶ 45-46, 54. Specifically, it alleges that the Defendants purposefully failed to register Plaintiffs' songs with a performing rights society so that third parties would not have to pay Plaintiffs a writer's share of public performance royalties, thus enticing more third parties to do business with Defendants. Id. ¶¶ 57-58. It further alleges that Extreme, rather than Viacom, issued the accounting statements, which were sporadic and materially omitted the majority of exploitations, and that Extreme frequently offered Plaintiffs' music to third parties in exchange for "consulting fees" instead of licensing fees so that Defendants would not have to pay Plaintiffs a percentage of the fees. Id. ¶¶ 54, 55, 70. As a result, Plaintiffs raise claims for breach of contract, breach of implied-in-fact contract, fraud, rescission, and accounting. Id. ¶¶ 79-148.

         Extreme Defendants and Viacom Defendants now move under Federal Rules of Civil Procedure 9(b), 12(b)(6) and 12(f) to: (1) partially dismiss Plaintiffs' two claims for breach of contract to the extent they seek damages beyond those permitted by the 2011 Agreement; (2) dismiss Plaintiffs' claims for fraud, breach of implied-in-fact contract, rescission, and accounting, as well as a purported claim for breach of the duty of good faith and fair dealing; (3) strike Plaintiffs' demands for punitive damages and disgorgement of profits; and (4) dismiss "Hype Music Production" from this action because it is not a legal entity capable of being sued.

         DISCUSSION

         To survive a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6), a complaint must have sufficient "factual plausibility" to allow the court "to draw the reasonable inference that the defendant is liable." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The plaintiffs factual allegations must "raise a right to relief above the speculative level" and cross "the line from conceivable to plausible." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007). In ruling on a Rule 12(b)(6) motion, a court may consider both "the allegations on the face of the complaint" as well as "[documents that are attached to the complaint or incorporated in it by reference." Roth v. Jennings, 489 F.3d 499, 509 (2d Cir. 2007).

         A. Breach of Contract

         Plaintiffs raise two separate breach-of-contract claims: one against New Creative and MTV Networks as an alter ego of New Creative; and one against Extreme, MTV Networks, and Hype as assignees of New Creative's obligations under the 2011 Agreement. FAC at pp. 35, 39. Each of these claims alleges, inter alia, two separate breaches of the 2011 Agreement: (1) a failure to register the songs with performing rights organizations, so that Plaintiffs could receive the writer's share of public performance royalties, and (2) a failure to license the songs and pay Plaintiffs fifty percent of the income generated from the licensing fees. Id. ¶¶ 81-83, 85-86, 96. Without differentiating between the two alleged breaches, Defendants argue that Plaintiffs' recoverable damages for their breach-of-contract claims should be limited to their share of licensing fees earned on or after July 1, 2014, due to the sole remedy and contractual limitations period provisions in the 2011 Agreement. Indeed, such clauses are enforceable under New York law. See Deutsch Alt-A Sec. Mortg. Loan Trust, Series 2006-OA1 v. DB Structured Prods., Inc.,958 F.Supp.2d 488, 498 n.6 (S.D.N.Y. 2013) ("New York ...


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