Opinion
06 Civ. 6390 (DLC).
August 10, 2007
For Plaintiff: Jethro M. Eisenstein, Profeta Eisenstein, New York, New York.
For Defendant: Arnold M. Weiner, Barry L. Gogel, Law Offices of Arnold M. Weiner, Baltimore, Maryland, Victor J. Rocco, Heller Ehrman LLP, New York, New York.
OPINION AND ORDER
This case concerns a dispute over whether the defendant Maya Angelou ("Angelou") owes defendant B. Lewis Productions, Inc. ("BLP") any portion of an advance she received for drafting greeting card text. Both parties have moved for partial summary judgment, agreeing that no genuine issues of material fact exist. Summary judgment on BLP's breach of contract claim is granted to Angelou.
Background
The facts that follow are undisputed. On June 28, 2000, Angelou entered into a License Agreement ("License Agreement") with Hallmark Cards Incorporated ("Hallmark") to permit Hallmark to use language provided by Angelou in greeting cards and related products (collectively, "Hallmark/Angelou products"). The License Agreement provided in part that Hallmark would pay Angelou royalties ranging from five to nine percent on its net revenues from the sale of the Hallmark/Angelou products. Hallmark also agreed to "render statements of the amount of Net Revenues as of the end of each quarter and pay the royalty shown to be owing thereunder within forty-five (45) days following the end of the calendar quarter."
By letter agreement dated January 1, 2005 ("Amendment"), Hallmark and Angelou amended the License Agreement. Among other things, the Amendment increased royalty rates, so that Angelou would receive ten percent of net profits for the years 2006 through 2008. Hallmark also agreed to pay Angelou an advance, "recoupable from royalties otherwise payable" to Angelou. In the event that Angelou delivered twenty-eight writings to Hallmark by April 15, 2005, her advance would total $800,000. The Amendment provided that the "advance may only be applied against royalties earned and payable on Net Revenues for the Contract Years January 1, 2006 through December 31, 2008." It then stated that "[a]ny royalties for Net Revenues for Contract Years 1/2006-12/31/2008 may not be applied in reduction of any unrecouped balances for prior periods." Hallmark paid an $800,000 advance to Angelou on February 22, 2005.
The initial relationship between BLP and Hallmark is not described in the parties' statements of facts, but BLP appears to have represented Angelou in her successful efforts to license her works for use on greeting cards and related products. BLP sued Angelou in September 2004 for breach of contract. To settle the prior lawsuit, Angelou and BLP executed a settlement agreement ("Settlement Agreement") effective January 12, 2006. Clause 1(b) of the Settlement Agreement provides,
Dr. Angelou shall pay to BLP sums equal to 30.5% of all net funds paid to Dr. Angelou as royalties under the License Agreement [i.e., the 2000 License Agreement as amended in 2005] after the effective date hereof, with respect to sales of products made by Hallmark under the License Agreement from and after January 1, 2006. Dr. Angelou shall instruct Hallmark to pay such sums to BLP on the same schedule as Hallmark pays royalties to Dr. Angelou only if and when the corresponding funds are actually paid to Dr. Angelou in accordance with the License Agreement, and from such funds only. Dr. Angelou shall instruct Hallmark to make such payments by check payable to B. Lewis Productions, Inc. and sent to 250 West 57th Street, Suite 311, New York, New York 10107-001 or to such other address as BLP shall designate in writing. Dr. Angelou will not be responsible for any failure by Hallmark to pay in accord with her instructions, and any such failure by Hallmark to so pay will not be deemed a breach hereof by Dr. Angelou. If, notwithstanding such instructions, Hallmark fails to so pay such sums directly to BLP, and instead pays them to Dr. Angelou, then Dr. Angelou will promptly remit the applicable sums to BLP. The parties further agree that, in the event that the foregoing terms for payment of sums equal to 30.5% of all net funds paid to Dr. Angelou as royalties under the License Agreement after the effective date hereof do not comply with Hallmark's operational requirements for accounting or payment of licensing royalties, the Parties shall agree upon alternate language of instruction to Hallmark consistent with Hallmark's requirements that will allow for payment of the payments agreed-upon herein to be paid to BLP without changing the monetary amounts of such payments.
(Emphasis supplied.) Angelou has not paid BLP any portion of the $800,000 advance.
Discussion
The parties agree that New York law governs the settlement agreement. "In New York, if a contract is straightforward and unambiguous," such that the parties' intent can be "ascertained from the face of their agreement," its interpretation presents a question of law for a court to decide without reference to extrinsic evidence. Postlewaite v. McGraw-Hill, Inc., 411 F.3d 63, 67 (2d Cir. 2005) (citation omitted). "[M]ere assertion by a party that contract language means something other than what is clear when read in conjunction with the whole contract is not enough to create an ambiguity sufficient to raise a triable issue of fact." Innophos, Inc. v. Rhodia, S.A., 832 N.Y.S.2d 197, 199 (App.Div. Mar. 22, 2007) (citation omitted). Neither party argues that the terms of the Settlement Agreement are ambiguous. They dispute, however, whether the agreement requires Angelou to pay BLP 30.5 percent of the $800,000 advance, which she received prior to the effective date of the Settlement Agreement, but which Hallmark began recouping after that date.
"Contracts must be read as a whole, and if possible, courts must interpret them to effect the general purpose of the contract." Postlewaite, 411 F.3d at 67 (citation omitted). "It is also important to read the document as a whole to ensure that excessive emphasis is not placed upon particular words or phrases." Id. (citation omitted). Contract terms are construed according to their plain meaning. Brooke Group v. JCH Syndicate 488, 663 N.E.2d 635, 638 (N.Y. 1996).
Read with these rules in mind, as a matter of law and based on its unambiguous language, the Settlement Agreement does not require Angelou to pay BLP any percentage of the $800,000 advance she received from Hallmark almost one year before the parties executed the Settlement Agreement. Clause 1(b) entitles BLP to 30.5 percent "of all net funds paid to Dr. Angelou as royalties under the License Agreement after the effective date [of the Settlement Agreement], with respect to sales of products made by Hallmark under the License Agreement from and after January 1, 2006." (Emphasis supplied). This clause entitles BLP to a percentage of only those royalties that are both paid to Angelou after the effective date of the Settlement Agreement and arise from sales occurring on or after January 1, 2006. This reading is reinforced by the following sentence, which directs Hallmark to make such payments to BLP "only if and when the corresponding funds are actually paid to Dr. Angelou . . . and from such funds only." (Emphasis supplied.) Although Angelou agreed to turn over funds to BLP in the event that Hallmark erroneously failed to pay BLP the required portion of its future payments to Angelou, the Settlement Agreement does not reflect any promise to share the advance paid in 2005.
BLP contends that the advance was not truly paid to Angelou until she had earned royalties of $800,000. This argument fails. The phrase "paid to" is not equivalent to the phrase "earned by."Scotto v. Brink's Inc., 962 F.2d 225, 227 (2d Cir. 1992) (collecting cases). Funds are paid when they are actually transferred to the payee, and not necessarily at the time when the funds are earned or the payor enters the transaction in its books. Id.; see also Preston v. Am. Fed. of Television Radio Artists, No. 90 Civ. 7094, 2002 WL 1009458, at *7 (S.D.N.Y. May 16, 2002) (affirming administrative holding, in context of ERISA denial of benefits claim, that the term "actually paid" excluded earnings applied to recoup a royalty advance). Although Scotto was not construing New York law and concerned a situation in which an employee earned the right to certain payments before being paid, rather than being paid in advance of earning the right to be paid, it is still relevant to the present analysis.Scotto is generally applicable to contract interpretation because it discussed the "commonly accepted meaning of the word `paid.'"Scotto, 962 F.2d at 227; see Brooke Group, 663 N.E.2d at 638.
BLP's argument that the Settlement Agreement's use of the language "funds paid . . . as royalties" (emphasis added) expands their entitlements to include a percentage of funds that Hallmark paid to Angelou prior to the effective date of the Settlement Agreement and recouped thereafter fails as well. The term "as royalties" plainly limits the class of payments of which BLP is entitled to receive a share, excluding, for example, funds paid as event fees. It does not change the meaning of the word "paid."
BLP also argues that the $800,000 advance constituted a loan rather than a payment and that Angelou was actually "paid" when Hallmark used royalties earned in 2006 to recoup the earlier advance payment. This argument fails because the terms of the License Agreement and the Amendment do not require Angelou to repay the advance in the event that her entitlement to royalties fails to reach $800,000. These agreements state merely that the advance will be "recoupable from royalties otherwise payable to" Hallmark. The Amendment's statement that the advance "may only be applied against royalties earned and payable on Net Revenues for contract years January 1, 2006 through December 31, 2008," does not create an obligation for Angelou to repay unrecouped portions of the advance. Rather, this language and the statement that follows it limit Hallmark's right to recoup the advance.
BLP's citations to Westinghouse Credit Corp. v. D'Urso, which discusses the doctrine of equitable recoupment, 278 F.3d 138, 145 (2d Cir. 2002), and Ebeling v. Ebeling, a 1908 case that discusses the meaning of the term "advance" when used in a will, 115 N.Y.S. 894, 895 (N.Y.Sup. 1908), are not on point. Similarly, the third case that it cites in support of its argument that use of the term recoupment necessarily implies a loan, United States v. Tarnapol, discussed the term advance in the context of determining whether certain behavior could constitute criminal fraud. 561 F.2d 466, 475 (3d Cir. 1977).
Conclusion
For the reasons stated above, the plaintiff's motion for partial summary judgment is denied and the defendant's motion for partial summary judgment is granted.
SO ORDERED: