Professional Documents
Culture Documents
United States Court of Appeals, Second Circuit
United States Court of Appeals, Second Circuit
3d 82
Island Def Jam Music Group ("IDJ") and Lyor Cohen, an IDJ principal, appeal
from a judgment of the United States District Court for the Southern District of
New York (Marrero, J.) in favor of TVT Records and TVT Music, Inc.
(collectively "TVT"). Following a failed venture to produce and promote a
series of recordings, TVT sued IDJ and Cohen on contract, tort and copyright
claims. The jury awarded $25 million in compensatory and $107 million in
punitive damages, an amount the court remitted to a total of $54 million.
Because we conclude that TVT's tortious interference and fraudulent
concealment claims had no legally sufficient evidentiary basis and that, as a
matter of law, TVT was not entitled to assert a copyright claim, we reverse the
judgment and set aside the awards on these grounds. Because we also conclude
that punitive damages were not recoverable for the breach of contract proved at
trial, we reverse that award as well.
Background
3
This litigation arose from a contractual dispute between IDJ and TVT over the
right to produce and market recorded music performances by a group known as
Cash Money Click ("CMC"). Except as noted, the facts are undisputed. IDJ and
TVT are both major players in the recording industry. TVT, founded in 1985, is
the nation's largest independent record label. It produces and distributes the
works of a number of highly successful hip-hop artists. IDJ is a division of
Universal Music Group Recordings, Inc., the world's largest record company.
Ja Rule was released from his contractual obligations to TVT in 1994 and
eventually followed Gotti to IDJ, signing an exclusive recording contract in
1998. Although TVT retained no rights to any of Ja Rule's new recordings after
1994, it still owned the rights to old CMC masters that had been made while Ja
Rule was under contract to TVT.
Ja Rule's relationship with IDJ was highly successful, and he evolved into one
of the recording industry's major stars. Gotti's career also flourished at IDJ.
Serving as producer, co-producer, or executive producer, he released a series of
enormously successful albums for numerous major hip-hop artists such as Jay
Z, Ja Rule and DMX. In 1999, Gotti entered a joint venture with IDJ to form a
record label, Murder, Inc., through which Gotti would produce records by
various artists, including Ja Rule.
In early 2001, despite Ja Rule and Gotti's exclusive recording contract with IDJ,
TVT approached Ja Rule and Gotti about reuniting CMC for a new album.
Although Lyor Cohen, IDJ's chairman, was reluctant to give IDJ's consent to a
new CMC album produced by TVT, he found himself in an awkward
predicament. He felt the need to accommodate Ja Rule and Gotti, who were in
the midst of renegotiating both the Murder, Inc. joint venture agreement and the
terms of Ja Rule's future recordings with IDJ. Cohen was concerned that a
failure to accommodate Ja Rule's request to do the CMC project might, at this
fragile time, impair IDJ's relationship with Gotti and perhaps alienate Ja Rule.
The discussions culminated in a Heads of Agreement ("HOA") signed by TVT,
Ja Rule and Gotti both on his own behalf and on behalf of Murder, Inc. The
HOA called on Gotti to produce a CMC album containing eight new songs and
four re-mixes of CMC's earlier, never-released recordings. The HOA further
provided that TVT would receive fifty percent of the profits from the new
venture and would own the copyrights to all the masters. However, since IDJ
had exclusive contracts with Ja Rule and Gotti, the agreement was subject to
IDJ's consent and the HOA itself appeared to contemplate IDJ's ultimate role in
"sign[ing]-off on this [agreement] signifying its acceptance and agreement
thereto."
IDJ contends that, as leverage to secure its consent, TVT threatened to release
the old CMC masters to coincide with the release of IDJ's next Ja Rule album
and that Ja Rule and Gotti were, in part, motivated to assist the careers of the
two former, comparatively less successful, CMC members. Nevertheless, Gotti
and Ja Rule warranted in the HOA that they had "the right, power and authority
to enter into and perform the [HOA's] terms and conditions," and
"indemnifie[d] and h[e]ld[ ] TVT harmless of and from any claims by any third
parties that TVT's exploitation of the Album ... infringe upon or violate the
rights of any such party."
forth in the [HOA] (as same pertains to or affects [IDJ]) and to permit `Ja Rule',
Murderers Inc.[sic] and Irv Gotti to perform for [TVT] and grant to [TVT] the
rights set forth in the [HOA]." The SLA also modified the profit distribution
formula in the HOA. Instead of fifty percent, TVT would receive forty percent,
Gotti, Ja Rule and Murder, Inc. would together receive thirty percent, and IDJ
would receive thirty percent. The SLA was signed on behalf of IDJ by Jeffrey
Kempler, senior vice president of business and legal affairs at IDJ, but was not
returned to TVT. TVT's lawyer William Leibowitz, Esq. became concerned
when he did not receive IDJ's executed copies of the SLA and, in November
2001, contacted IDJ's lawyers. They assured Leibowitz that the deal was final,
but still did not forward executed copies to TVT. Later that month, Leibowitz
took the precautionary step of writing IDJ to place it on notice that TVT was
relying on IDJ's assurances regarding its commitment to the SLA and that TVT
was proceeding on that basis. IDJ did not respond to the letter.
10
Sometime after execution of the HOA by Gotti and Ja Rule in October 2001,
TVT, Ja Rule and Gotti began to perform obligations imposed by the HOA.
The signing of the HOA triggered a $400,000 advance payment from TVT to
Gotti and Ja Rule, and the artists began recording new CMC tracks and
remixing old ones. In the spring of 2002, Gotti, Murder, Inc. and TVT
developed promotional materials for the album, including a teaser DVD and
CD featuring two of the remastered CMC tracks released by IDJ. In this regard,
IDJ obtained oral and written licenses for the songs "The Rain" and "Get Tha
Fortune," respectively, from TVT. A release date was set for the fall of 2002.
11
TVT's theory, which it successfully pursued at trial, was that IDJ and Cohen
never really intended to cooperate on the new TVT album and, in fact, intended
to sabotage it. They initially consented to the CMC project in order to gain time
to renegotiate an extension of Gotti's contract, which was expiring at the end of
2001. Because Cohen knew he could not alienate Gotti during this period, he
accommodated Gotti and Ja Rule's desire to produce (at TVT's expense) a new
CMC album. Once Gotti was re-signed in December 2001, IDJ proceeded,
through a variety of steps, to kill the album. According to TVT, IDJ promised
Gotti and Ja Rule that it would pay additional compensation if they could
deliver the TVT-owned CMC masters to IDJ for release. IDJ, at the same time,
moved up the release date for Ja Rule's next IDJ album from early 2003 to
November 2002 to compete with, and presumably detract attention from, the
new CMC album. To cap things off, in August 2002, IDJ finally responded to
TVT's request of ten months earlier for the executed copy of the SLA by
rejecting it, forbidding TVT from exploiting Ja Rule's services and informing
TVT that it could not proceed with the release of the CMC album.
12
Faced with the prospect of losing the potentially valuable CMC album and
having IDJ issue its own Ja Rule album that might include old CMC music,
TVT sued IDJ, asserting a number of claims that have survived to this appeal.
TVT claimed for breach of contract, contending that IDJ breached the SLA by
repudiating it after agreeing to execute it and instructing Murder, Inc., Gotti and
Ja Rule not to deliver the CMC album to TVT. It claimed that IDJ tortiously
interfered with Ja Rule and Gotti's performance under the HOA and under
CMC's 1994 Agreement with TVT when IDJ and Cohen caused Murder, Inc.,
Gotti and Ja Rule not to deliver the CMC album as required under the HOA.
TVT also claimed that IDJ and Cohen fraudulently induced other CMC
members to violate the 1994 Agreement by engaging in unauthorized
performances released by IDJ. TVT asserted a fraud claim based on allegedly
false statements on behalf of IDJ at the behest of Cohen. The statements
confirmed to TVT that IDJ agreed to TVT's production of the CMC Album
pursuant to the SLA. Finally, TVT claimed for willful copyright infringement
on the theory that IDJ and Cohen fraudulently obtained permission from TVT
to use two CMC songs on the Summer 2002 teaser as a reciprocal courtesy for
IDJ's agreeing to the CMC project.
13
Following a bifurcated trial, the jury found IDJ liable for breach of contract, in
effect concluding that IDJ had entered into an oral contract embodying the
SLA. The jury also found the defendants jointly and severally liable for tortious
interference with the HOA, fraudulent concealment and copyright
infringement. Subsequently, the jury assessed compensatory and punitive
damages of approximately $132 million.
14
IDJ then moved under Rule 50(b) for judgment as a matter of law and under
Rule 59 for a new trial or remittitur. Fed.R.Civ.P. 50(b), 59. IDJ succeeded
only in obtaining a remittitur of a substantial amount of the punitive damages,
thereby reducing the total judgment to approximately $54 million. Specifically,
the court reduced the punitive damages awards against both IDJ and Cohen on
the tortious interference claims from $50 million each to $25 million and $2
million, respectively, and against Cohen on the fraud claims from $6 million to
$1 million.1 This appeal ensued.2
Discussion
15
As their principal grounds for relief on appeal, IDJ and Cohen contend that the
District Court erred in denying their post-trial motions on TVT's claims for
tortious interference, fraudulent concealment and copyright infringement, and
in permitting any punitive damages to survive the motion for remittitur. We
review de novo the District Court's denial of a motion for judgment as a matter
of law. Bracey v. Bd. of Educ. of Bridgeport, 368 F.3d 108, 113 (2d Cir.2004)
(citation omitted) (RJC, RDS, Gibson). In so doing, "the question is always
whether, after drawing all reasonable inferences in favor of the non-moving
party and making all credibility assessments in [the non-movant's] favor, there
is sufficient evidence to permit a rational juror to find in [the non-movant's]
favor." Id. (citation omitted). We also review de novo questions of law such as
the legal viability of TVT's copyright claim. Cf. Infinity Broadcast Corp. v.
Kirkwood, 150 F.3d 104, 107 (2d Cir.1998) (district court's rejection of a fair
use defense to copyright infringement is subject to de novo review).
16
For the reasons set forth below, we conclude that TVT's claims for tortious
interference and for fraudulent concealment fail for lack of a legally sufficient
evidentiary basis. We also conclude that TVT is not entitled to assert a claim
for copyright infringement without having rescinded the licenses on which its
infringement claim is based. Accordingly, we reverse the finding of liability
and set aside the damages awarded on those claims.3 Finally, we set aside the
award of punitive damages based on breach of the SLA because punitive
damages are not recoverable for breach of contract where, as here, the wrongful
conduct is not directed at the public at large.
A. Tortious Interference
17
Under New York law, a tortious interference claim requires a showing that a
valid contract exists and that a third party with knowledge of the contract
intentionally and improperly procured its breach. Finley v. Giacobbe, 79 F.3d
1285, 1294 (2d Cir.1996). An important qualification exists: One asserting a
tortious interference claim must also show that the defendant was not a party to
the contract with which he allegedly interfered. Id. at 1295; accord Winicki v.
City of Olean, 203 A.D.2d 893, 611 N.Y.S.2d 379, 380 (4th Dep't 1994). For
this reason, the viability of TVT's tortious interference claim depends on
whether IDJ was a party or a stranger to the HOA.4 IDJ claims that the SLA
and the HOA were a single contract and that, because the jury implicitly found
that an oral agreement embodying the SLA had been created, IDJ was
necessarily a party to the HOA. Consequently, IDJ could not have tortiously
interfered with Gotti's and Ja Rule's performance under the HOA.5 Blue Cohen
6; Blue IDJ 22.
18
TVT, on the other hand, contends that during pretrial proceedings the court
below correctly identified the question of whether the HOA and the SLA were
separate agreements as one of fact. TVT also contends that the jury was
specifically instructed that it could not find defendants liable for tortious
interference unless it found that the parties intended the HOA and the SLA to
be separate contracts. Consequently, the jury's finding that IDJ and Cohen
committed tortious interference was conclusive of whether the agreements were
separate since it was sufficiently grounded in the evidence.
19
20
We think it is sufficiently clear that the HOA and SLA are one agreement and
that there was nothing for the jury to decide. The HOA and the SLA were
intended to effectuate the same result: the production and release of a CMC
album containing older music owned by TVT and newer music to be recorded
and produced by IDJ, Ja Rule and Gotti. IDJ was obligated under the SLA to
"honor all of the terms and conditions set forth in the [HOA] (as same pertains
to or affects you) and to permit `Ja Rule', Murderers Inc. [sic] and Irv Gotti to
perform for us and grant to us the rights set forth in the [HOA]." The HOA
expressly contemplated IDJ's eventual participation in the project since Ja Rule
and Gotti were to receive payments from TVT once IDJ "sign[ed]-off on this
Heads of Agreement signifying its acceptance and agreement thereto."
Moreover, the SLA modified the profit distribution formula in the HOA to
provide significant payments directly to IDJ. Since the SLA is meaningless
without the HOA, IDJ is a participant, not a stranger, and the "interference" that
IDJ was found by the jury to have engaged in constituted nothing more than a
breach of the SLA and, by its terms, the HOA. See Finley, 79 F.3d at 1295;
Winicki, 611 N.Y.S.2d at 380.
21
TVT contends that the HOA and the SLA are separate because the evidence
established that the parties intended that they would be read separately, they
were negotiated and signed at different times, memorialized in different
documents and involved different parties. While these factors are pertinent to
the "separate contracts" determination, they do not address the legally operative
TVT also contends that the HOA and SLA were separate contracts because
they were not mutually dependent that is, the breach of one did not undo
obligations imposed by the other. See Commander Oil Corp., 991 F.2d at 53
(inquiry is whether "the parties assented to all the promises as a whole, so that
there would have been no bargain whatever if any promise or set of promises
had been stricken") (quoting 6 Williston on Contracts 863, at 279-80 (3d ed.
W. Jaeger 1962)). We believe this argument is simply wrong. It is undisputed
that the CMC project would not, and could not, have proceeded without IDJ's
execution of the SLA (Gray Cohen 11); indeed, it was IDJ's breach that caused
the demise of the project. Put another way, if IDJ's promises had been
"stricken" from the SLA, there "would have been no bargain whatever." 6
Williston on Contracts 863, at 279-80. It is of no moment that the HOA also
contained certain obligations (e.g. the performers' obligation to indemnify TVT
against claims arising from the CMC album) that were not affected by the SLA.
The test is whether the documents were intended as a single agreement, not
whether they imposed congruent obligations. The conclusion is inescapable
that the SLA and HOA were meant to be read together as a single contract, and
therefore IDJ was not a stranger to the agreement. Accordingly, we reverse the
judgment for TVT on its tortious interference claim against IDJ and Cohen.
B. Fraudulent Concealment
23
IDJ and Cohen also contend that the District Court erred in denying its motion
for judgment as a matter of law with respect to TVT's fraudulent concealment
claim (that IDJ failed to disclose that it never intended to perform its
obligations under the SLA) because, under New York law, the failure to
disclose an intention to breach is not actionable as a fraudulent concealment.
We agree.6
24
Under New York law, fraudulent concealment requires proof of: (1) failure to
discharge a duty to disclose; (2) an or effect."); Gardenier, 21 Wend. at 171 ("
[T]he law never will recognize [mutual fraud] as a ground of relief, either one
way or the other, as between the parties to it. It will neither enforce nor annul a
contract mutually fraudulent.").
25
Yet the reasoning underlying our ruling in Sphere Drake, which seeks to protect
We need not decide this issue, however, because here any finding that the
consulting agreements were part of an effort to hide assets from creditors or
defraud third parties is clearly erroneous. At best, the facts might support a
conclusion that the parties intentionally drafted the contract to prevent third
parties from understanding the transactions to which the consulting agreements
were referring. We hold that, in the absence of any further evidence that a
contract is illegal or seriously contrary to public policy, such a factual finding
does not suffice to render an entire contract void, and an arbitration agreement
unenforceable, under Sphere Drake.
II. The Scope of the Agreements
27
Here, TVT alleged and presented evidence at trial that during the course
of the parties' relationship, IDJ and Cohen not only planned to breach the SLA
by revoking the waiver of Gotti's and Ja Rule's exclusivity, but also planned to,
and did, use the existence of the SLA to achieve at least two collateral aims: (1)
to help lure Gotti into re-signing with IDJ; and (2) to lure TVT and CMC into
creating new masters which IDJ would then appropriate for itself. We have
held that in a situation where a defendant fails to disclose an intention not to
perform a promise in the future, one of the ways a plaintiff can maintain a fraud
claim under New York law is by also demonstrating "a fraudulent
misrepresentation collateral or extraneous to the contract."
Bridgestone/Firestone, 98 F.3d at 20; see also Deerfield Communications Corp.
v. Chesebrough-Ponds, Inc., 68 N.Y.2d 954, 510 N.Y.S.2d 88, 502 N.E.2d
1003 (1986) (refusing to dismiss fraud claim alleging "a misrepresentation of
present fact, not of future intent" which misrepresentation was "collateral to, but
which was the inducement for the contract" and thus not duplicative of contract
claim) (citations and internal quotation marks omitted).
29
action sounding in negligence were properly dismissed where plaintiff has not
alleged the violation of a legal duty independent of the contract because "[i]t is
a well-established principle that a simple breach of contract is not to be
considered a tort unless a legal duty independent of the contract itself has been
violated. This legal duty must spring from circumstances extraneous to, and not
constituting elements of, the contract, although it may be connected with and
dependent upon the contract.").7
30
TVT relies principally on Brass to support its contention that it proved a claim
for fraudulent concealment, but Brass cannot bear this weight. In Brass, we
held that where a securities broker failed to inform a buyer that securities
offered for sale were encumbered, and where the broker knew that such
information was unknown to the buyer and would likely have caused him not to
purchase the securities, the seller could be liable for fraudulent concealment.
Brass, 987 F.2d at 152. The issue in Brass was not that the seller never
intended to perform the contract; on the contrary, the seller followed through
with the sale and delivered the securities. The issue, instead, was that the seller
concealed a material defect in the product it sold. Id. at 152. We analogized
Brass to Donovan v. Aeolian Co., 270 N.Y. 267, 200 N.E. 815 (1936), where
the New York Court of Appeals held that a piano manufacturer fraudulently
concealed a material fact when selling a used and rebuilt piano because the
salesman was silent regarding the fact that the piano in the showroom was used
and partially rebuilt, and the manner in which the instrument was displayed
implied that it was new. Brass, 987 F.2d at 152 (citing Donovan, 270 N.Y. at
270-71, 200 N.E. 815).
31
Here, IDJ did not conceal any information that, if known by TVT, would have
made its obligations under the SLA less valuable to TVT. It simply failed to
perform. As a result, contract damages are available to TVT, but not tort
damages sounding in fraud. Accordingly, TVT's claim for fraudulent
concealment fails.
C. Copyright Infringement
32
33
We agree that the copyright verdict and damages award cannot stand as a
33
We agree that the copyright verdict and damages award cannot stand as a
matter of law, but not for the reason advanced by IDJ and Cohen. Instead, we
hold that the District Court mistakenly concluded that "[a] fraudulently induced
copyright license is invalid" ipso facto. TVT Records, 244 F.Supp.2d at 269
(summary judgment motion) (cited in TVT Records, 279 F.Supp.2d at 381
(Rule 50(b) motion)). This conclusion overlooks the fact that the license must
formally be rescinded before an infringement action based on fraudulent
inducement of a copyright license can proceed. See Graham v. James, 144 F.3d
229, 237-38 (2d Cir.1998) ("A material breach of a covenant will allow the
licensor to rescind the license and hold the licensee liable for infringement for
uses of the work thereafter," but "rescission [does] not occur automatically....");
see also, Jacob Maxwell, Inc. v. Veeck, 110 F.3d 749, 753 (11th Cir.1997)
("One party's breach [of an oral, nonexclusive license to play a song] does not
automatically cause recision of a bilateral contract"); Rano v. Sipa Press, Inc.,
987 F.2d 580, 586 (9th Cir.1993) ("Although licensing agreements are not
terminable at will, under federal and state law a material breach of a licensing
agreement gives rise to a right of rescission which allows the nonbreaching
party to terminate the agreement. After the agreement is terminated, any further
distribution would constitute copyright infringement.") (internal citations
omitted); 3 Nimmer on Copyright 10.15 [A] (6th ed. 1978) ("Rescission may
also be based on fraud in the inducement to execute the assignment," but "
[f]ailing such rescission, ... the grant continues in place, thus precluding
infringement liability until such time as the copyright owner exercises his
entitlement to rescind.").
34
TVT has neither sued for rescission of the licenses nor alleged the breach of
any covenant related to their grant. Accordingly, it cannot now recover for
copyright infringement. Therefore, we reverse the judgment of liability and set
aside the damages award and the attorneys' fees on TVT's copyright
infringement claim. See 17 U.S.C. 505.
35
D. Punitive Damages.
36
Finally, IDJ has appealed the punitive damages awarded on TVT's breach of
contract claim,9 on the ground that New York law only permits such an award
when a defendant's conduct is "part of a pattern directed at the public
generally," a requirement not satisfied in this case.10 New York Marine & Gen.
Ins. Co. v. Tradeline (L.L.C.), 266 F.3d 112, 130 (2d Cir.2001) (quoting New
York Univ. v. Cont'l Ins. Co., 87 N.Y.2d 308, 316, 639 N.Y.S.2d 283, 662
N.E.2d 763 (1995)). The District Court acknowledged the existence and vitality
of this rule, but discerned a "narrow exception" from two Appellate Division
cases. TVT Records, 262 F.Supp.2d at 195-96 (discussing Aero Garage Corp.
v. Hirschfeld, 185 A.D.2d 775, 586 N.Y.S.2d 611 (1st Dep't 1992), and
where the plaintiff establishes a sufficiently high degree of bad faith by the
defendant evincing disingenuous or dishonest failure to carry out contractual
obligations, thus frustrating the plaintiff's rights to an aggravated extent,
particularly where bad faith is apparent at or near the outset of the transaction
and where the breached obligations are unambiguous.
38
Id. at 196.
39
We are not persuaded that this exception is sound. For one thing, neither the
Aero Garage court nor the Williamson court characterized what it was doing as
carving out an exception to the general public aim requirement. Both cases
relied on an earlier Court of Appeals case that approved punitive damages for a
"bad faith" breach of contract, without purporting to craft an exception to, or
even discussing, the public aim requirement. See Aero Garage, 586 N.Y.S.2d at
613 (citing Gordon v. Nationwide Mut. Ins. Co., 30 N.Y.2d 427, 437, 334
N.Y.S.2d 601, 285 N.E.2d 849 (1972)); Williamson, 460 N.Y.S.2d at 41
(same). 11 In other words, Aero Garage and Williamson were decided at a time
when New York law was at best ambiguous as to whether conduct directed at
the general public was necessary to recover for breach of contract. Compare
Gordon, 30 N.Y.2d at 437, 334 N.Y.S.2d 601, 285 N.E.2d 849 (noting that "
[t]he punitive nature of damage for the bad faith breach of contract is a
characteristic of the law of contracts generally," without mentioning any public
aim requirement), with Garrity v. Lyle Stuart, Inc., 40 N.Y.2d 354, 358, 386
N.Y.S.2d 831, 353 N.E.2d 793 (1976) ("It has always been held that punitive
damages are not available for mere breach of contract, for in such a case only a
private wrong, and not a public right, is involved.").
40
The problem for TVT's theory is that two more recent New York Court of
Appeals cases call into question the continued validity of the rule in Gordon, as
applied in Aero Garage and Williamson. In Rocanova v. Equitable Life
Assurance Society of the United States, 83 N.Y.2d 603, 612 N.Y.S.2d 339, 634
N.E.2d 940 (1994), the Court of Appeals, after reviewing this precedent,
concluded that "[p]unitive damages are not recoverable for an ordinary breach
of contract as their purpose is not to remedy private wrongs but to vindicate
public rights," but that such damages were recoverable when the breach also
involved a particularly egregious fraud that "was aimed at the public
generally." Id. at 613, 612 N.Y.S.2d 339, 634 N.E.2d 940 (internal quotation
marks omitted). In New York University v. Continental Insurance Co., 87
N.Y.2d 308, 639 N.Y.S.2d 283, 662 N.E.2d 763 (1995), decided the following
year, the Court of Appeals made it even more clear that punitive damages were
recoverable in a contract action only "if necessary to vindicate a public right."
Id. at 315, 639 N.Y.S.2d 283, 662 N.E.2d 763 (citing Rocanova, 83 N.Y.2d at
613, 612 N.Y.S.2d 339, 634 N.E.2d 940). This rule has not been changed by the
Court of Appeals, and we have no reason to question its continued vitality.12
41
We do not believe that IDJ's conduct in breaching the SLA was aimed at the
public generally. The District Court held that even if the public aim
requirement applied, IDJ's hurried and haphazard attempt to deliver the CMC
Album materials to TVT on the eve of trial "implicate[d] the judicial process,"
and therefore could be construed as "being directed at the public generally."
TVT Records, 262 F.Supp.2d at 197. In addition, it held that IDJ's breach had
an impact upon the public because it "impaired the creation and dissemination
of a work of art that TVT intended to sell to the general public and which it had
already advertised to the public at large." Id.
42
43
Our decision in Merritt confirms this view. 95 F.3d at 161. There we held that a
defense contractor's failure to pay a sub-contractor for work for which the
contractor had been paid by the Army Corps of Engineers, as well as its fraud
in securing a promissory note and confession of judgment from the subcontractor, did not "evince[] a pattern of conduct harming the general public."
Id. We were not persuaded that conduct which could be characterized as
defrauding the taxpayers and manipulating the judicial process had a
sufficiently public component to support punitive damages. We reach a similar
result here and set aside the award of punitive damages based on TVT's breach
of contract. IDJ has not appealed the breach of contract award and remains
liable for the $126,720 in compensatory damages awarded on that claim.
Conclusion
44
We reverse the judgment and set aside the award of damages, as well as
attorneys' fees, on TVT's tortious interference, fraudulent concealment and
copyright infringement claims. We also set aside the jury's award of punitive
damages on TVT's breach of contract claim. We remand to the District Court
with instructions to enter judgment in conformity with this opinion.
Notes:
1
See TVT Records v. Island Def Jam Music Group, 279 F.Supp.2d 413, 461
(S.D.N.Y.2003) (granting IDJ's motion for remittitur). TVT elected to remit its
award of punitive damages to these amounts, rather than accept a new trial, and
subsequently applied for, and received, attorneys' fees under section 505 of the
Copyright Act, 17 U.S.C. 505. See TVT Records v. Island Def Jam Music
Group, 288 F.Supp.2d 506, 512 (S.D.N.Y.2003) (granting attorneys' fees).
Appellants also argue that IDJ is not a stranger to the HOA because IDJ and
Gotti were co-owners of Murder Inc. as equal partners. Under this theory,
appellants contend that IDJ cannot be liable for tortious interference with the
HOA because IDJ was a party to the contract by virtue of its fifty percent stake
in Murder Inc. Since we conclude that IDJ was not a stranger to the agreement
on the ground that the SLA and HOA must be read together as a single contract,
we do not reach this argument
As with the tortious interference issue, TVT contends that appellants waived
this argument by not properly asserting it below in their Rule 50(a) motion. This
contention is without merit. The District Court's finding of waiver
notwithstanding, appellants argued, in their oral Rule 50(a) motion:
The fraud claim is nothing more than an effort to get around the fact that there
was no breach of contract. It's dressing up a breach of contract claim in an
aggravated description of what went on here. They are trying to circumvent the
law of contract and impose fraud liability when there is no contract.
Tr. of 3/17/02, at 1615 (emphasis added). In addition to arguing that there was
no contract (which the jury did not credit), appellants also argued that TVT's
fraud claim was duplicative of its contract claim, which subsumes the question
of whether they had a duty to disclose their intention to breach the SLA.
Apparently, it was also clear to the District Court, which, in ruling on
appellants' Rule 50(b) motion, disposed of the argument by reference to its
earlier denial of summary judgment with no mention of waiver (while finding
other of appellants' arguments that were not raised in the Rule 50(a) motion
waived). See TVT Records v. Island Def Jam Music Gp., 279 F.Supp.2d 366,
378, 380 (S.D.N.Y.2003).
See also Guterman v. RGA Accessories, Inc., 196 A.D.2d 785, 602 N.Y.S.2d
116, 117 (1st Dep't 1993) ("As the only fraud alleged relates to the breach of
contract, the mere addition of allegations of scienter does not give rise to a
cause of action seeking damages for fraud."); Metropolitan Transp. Auth. v.
Triumph Adver. Prod., 116 A.D.2d 526, 497 N.Y.S.2d 673, 675 (1st Dep't
1986) (dismissing fraud claim based on fraudulent misrepresentation collateral
to the contract because "none of [plaintiff's] allegations [we]re distinct from
those giving rise to the breach of contract claim and relate[d] to facts collateral
and extraneous to the contract"). Cf. Grappo v. Alitalia Linee Aeree Italiane,
S.p.A., 56 F.3d 427, 434 (2d Cir.1995) (holding that plaintiff stated a fraud
claim where he alleged that defendant engaged in fraud independent of the
contract but acknowledging that "[a] cause of action for fraud does not
generally lie where the plaintiff alleges only that the defendant entered into a
contract with no intention of performing.").
8
We note that when the trial court denies a Rule 50 motion, both that denial and
"errors of law in the trial court may be raised on appeal." 9A C. Wright & A.
Miller,Federal Practice & Procedure, 2540, at 373 (1995).
IDJ has also appealed from the punitive awards on TVT's tortious interference
and fraudulent concealment claims, but our reversal on those claims renders
those damages issues moot
10
New York law also requires that the defendant's conduct be (1) "actionable as
an independent tort; (2) ... of [an] egregious nature; [and] (3) ... directed to
plaintiff," before punitive damages for breach of contract can be awardedNew
York Marine, 266 F.3d at 130. Apart from the fact that appellants' conduct was
not aimed at the general public, our dismissal of TVT's tort claims necessarily
means that appellants' conduct was not "actionable as an independent tort." This
additional reason also warrants setting aside the award of punitive damages on
TVT's contract claim. See Canelle v. Russian Tea Room Realty LLC, 2002 WL
287750 (S.D.N.Y. Feb. 27, 2002), 2002 U.S. Dist. LEXIS 3169, at *24.
11
Gordon held that in order to trigger punitive damages, "bad faith require[d] an
extraordinary showing of a disingenuous or dishonest failure [by the defendant]
to carry out a contract." Gordon, 30 N.Y.2d at 437, 334 N.Y.S.2d 601, 285
N.E.2d 849.
12
remedy private wrongs but to vindicate public rights.") (internal citation and
quotation marks omitted); Bibeau v. Ward, 228 A.D.2d 943, 645 N.Y.S.2d 107,
110 (3d Dep't 1996) ("Punitive damages [in contract claims]... are limited to
those instances where it is necessary to vindicate a public right.") (internal
citation and quotation marks omitted); Murray-Gardner Mgmt. Inc. v. Iroquois
Gas Transmission Sys. L.P., 229 A.D.2d 852, 646 N.Y.S.2d 418, 420 (3d Dep't
1996) ("[P]laintiff's request for punitive damages was properly dismissed in the
absence of a showing by plaintiff that defendant engaged in egregious tortious
conduct toward it that was part of a pattern directed at the public generally.").
Second, this Court has not wavered in applying the public aim requirement
since Rocanova was issued. See New York Marine, 266 F.3d at 130 (claim for
punitive damages in contract actions failed because plaintiff did not allege that
defendant's conduct was directed at the public); United States v. Merritt
Meridian Constr. Corp., 95 F.3d 153, 160 (2d Cir.1996) (punitive damages
recoverable in contract action "if the conduct was aimed at the public
generally"). Cf. New Spectrum Realty Servs., Inc. v. Nature Co., 42 F.3d 773,
777 (2d Cir.1994) (declining to award punitive damages, but recognizing that
New York's Appellate Division has awarded punitive damages for willful
frustration of a plaintiff's rights under an unambiguous contract) (citing Aero
Garage Corp. v. Hirschfeld, 185 A.D.2d 775, 586 N.Y.S.2d 611 (1st Dep't
1992)).