Opinion
601064/2004.
Decided September 18, 2008.
Plaintiff is represented by Jeff Sanders, Esq., of Roberts Ritholz, LLP, of 183 Madison Ave, New York, NY 10016, tel. no. 212-448-1800. Defendants are represented by Stewart Levy, Esq., of Eisenberg Tanchum Levy, 675 Third Avenue, New York, NY 10017, tel. no. 212-599-0777.
From 1983 to 1987, plaintiff Richard Reinhardt was a drummer for the legendary New York City punk rock band, The Ramones. Reinhardt seeks to recover royalties he claims are due to him from The Ramones record sales. Defendants are The John Family Trust of 1997 (John Trust), which represents the interests of the estate of now-deceased John Cummings (Cummings), a member of The Ramones who performed under the name "Johnny Ramone"; Ramones Productions, Inc. (Ramones Productions), a corporate entity used to operate non-publishing aspects of The Ramones's business activities; Taco Tunes, Inc. (Taco Tunes), which acted as the publisher of many of The Ramones's songs; Herzog Strauss, an accounting firm engaged in distributing royalties generated from The Ramones's music; and Ira Herzog who allegedly managed Romones Productions on a day-to-day basis. Defendants move to dismiss the Amended Complaint for failure to state a claim and based upon documentary evidence (CPLR 3211 [a] [1] and [7]), but for part of the first cause of action which alleges breach of contract. The motion is granted for the reasons below.
Reinhardt entered into a contract with Ramones Productions and Taco Tunes on August 1, 1984 (1984 Agreement), pursuant to which Reinhardt agreed to perform and make recordings with The Ramones. Ramones Productions promised to pay Reinhardt 11.8% of royalties and advances it received on account of the first LP (defined as "a 12 inch, 33/13 rpm, long-playing double-sided phonograph record consisting of not less than nine masters" [i.e., recorded songs]) after certain costs are deducted; 18.9% of royalties and advances received on account of masters recorded in connection with the second LP after certain costs are deducted; and 23% of payment received on account of masters recorded in connection with the third LP after certain costs are deducted. For all other masters, Reinhardt would receive a full band-member's share, which presumably would be no more than 25% of the royalties and advances because there were three existing band members at the time the contract was executed. The 1984 Agreement also provided that songs written or co-written by Reinhardt would be published by Taco Tunes, which would pay him a share of the royalties derived therefrom. Under section 11 of the 1984 Agreement, Ramones Productions is obligated to pay royalties to Reinhardt within sixty days of receipt, and it provides that:
In a memorandum opposing the motion, Reinhart contends that he had no agreement with Taco Tunes, but the 1984 Agreement annexed to his amended complaint includes Taco Tunes as a signing party.
All royalty statements and all other accounts rendered to [Reinhardt] shall be binding upon [Reinhardt] and not subject to any objection by [Reinhardt] for any reason unless specific objection in writing, stating the basis thereof, is given to [Ramones Productions] within two (2) years from the date rendered. In the event [Reinhardt] fails to timely object then [Reinhardt] shall be foreclosed from maintaining any action, claim or proceeding against [Ramones Productions] in any forum or tribunal with respect to any statement or accounting due hereunder unless such action, claim or proceeding is commenced against [Ramones Productions] in court of competent jurisdiction within two (2) years after the date such statement or accounting is rendered.
Reinhardt performed on three Ramones LPs Too Tough To Die, Animal Boy, and Halfway to Sanity, and wrote several songs for these albums. Recently, an album called Ramones Smash You! * Live 85 was released that included non-studio tracks on which Reinhardt performed.
In the fall of 2001, Reinhardt (through an intermediary) contacted Herzog to inquire about royalties he may be owed and to obtain an accounting. The Amended Complaint alleges that Herzog initially stated that no royalties were owed because The Ramones recordings were not generating royalties. In December 2001, however, Herzog contacted the intermediary and said that money was due. Herzog also referred to a "new contract" Reinhardt had made that provided for a flat royalty rate of 12.5%, but he was unable to produce a copy. Reinhardt obtained the services of a certified public accountant, Vincent Sbarra (Sbarra), who visited Herzog's office to review the books. According to the Amended Complaint, Herzog offered to settle Reinhardt's claim for $32,500 or to pay nothing. Reinhardt accepted the offer in January 2002, executing a release for all claims up to and including June 30, 2001 (2002 Settlement).
From 2002 through 2004, Herzog sent Reinhardt statements showing the revenues collected by Ramones Productions, along with additional royalty checks. Reinhardt sometimes requested more detailed information, but the requests were denied.
According to Herzog, Reinhardt exited the band in 1987 leaving no address. Reinhardt had been represented by sophisticated counsel in negotiation of the 1984 Agreement, and in subsequent contacts regarding royalty payments ( see, letter from Roberta L. Korus, Esq., of Philips, Nizer, Benjamin, Krim Ballon, to Herzog, dated October 10, 1989, annexed to Notice of Motion at Ex. F). Herzog claims that he saw Reinhardt at a funeral service for band member Jeffrey Hyman (aka Joey Ramone) in April 2001 and approached him, telling Reinhardt that he was holding royalties for him. Reinhardt sent Sbarra to review the records, and after an arms-length negotiation, the royalty claim was settled in full through the accounting period ending June 30, 2001. At the time, neither Herzog nor Sbarra had a copy of the 1984 Agreement, and Herzog believed the royalty rate was 12.5%, and the negotiation proceeded under that assumption. In 2003, Reinhardt commenced a lawsuit against the defendants herein, and others, in the United States District Court for the Western District of California. That lawsuit was withdrawn.
In connection with the California action, a copy of the 1984 Agreement was obtained and Herzog noted his error in applying a 12.5% royalty rate. He claims that he sent Reinhardt additional money in 2003 to correct that error.
This lawsuit was commenced by filing on April 19, 2004. It alleges a breach of contract by Ramones Productions; breach of fiduciary duties by all defendants; seeks to impose a constructive trust on all defendants; and alleges fraud and negligent misrepresentation by Herzog, Herzog Strauss, Cummings and Ramones Productions. The alleged misrepresentations were made by Herzog in connection with negotiating the 2002 Settlment, as follows: (1) The Ramones did not generate any royalty income from recordings on which Reinhardt performed during the period 1984 through 2001; (2) Reinhardt signed a new contract providing for a flat 12.5% royalty rate, rather than the sliding rate actually provided for in the 1984 Agreement, and which prohibited Reinhardt from reviewing Ramones Productions's books and empowered Herzog to unilaterally suspend royalty payments; and (3) Herzog would "make sure" that Reinhardt would receive no royalty payments if he persisted his request to review statements rendered to Ramones Productions from their record companies.
DISCUSSION
The facts alleged in the Amended Complaint do not make out a viable prima facie claim against Cummings or the John Trust. It alleges that Cummings breached a fiduciary duty, committed fraud and negligent misrepresentation, and he failed to distribute funds due to Reinhardt under the 1984 Agreement. However, Reinhardt had no direct contact with Cummings as relevant here, and no misrepresentation on Cummings's part is alleged. Also, he had no obligation to distribute funds to Reinhardt under the 1984 Agreement; he was a fellow distributee of the subject royalties, and there is no evidence that he was obligated to share royalties he received with Reinhardt outside their respective agreements with Ramones Productions, Taco Tunes or the Herzog Defendants. Reinhardt alleges that Cummings conferred with Herzog in management decisions, but he does not allege facts supporting the claim that Cummings owed Reinhardt a fiduciary duty. Accordingly, the Amended Complaint is severed and dismissed as against the John Trust.
Reinhardt has stated a claim against Ramones Productions for breach of contract. There is a dispute as to the amount of revenue Ramones Productions received that may be payable to Reinhardt, and discovery is needed to ascertain those facts.
Reinhardt's claim is limited, however, by the terms of the 1984 Agreement and by the settlement and release of his claims through June 30, 2001. Although Reinhardt insinuates that he agreed to the 2002 Settlement under sinister circumstances, the facts alleged do not make out a claim for fraud or negligent misrepresentation. Reinhardt had the opportunity to review defendants' records with an accountant, the sum was agreed to in arms-length negotiations, and he was under no obligation to accept the settlement offer. It also bears mentioning that under the 1984 Agreement, Reinhardt's time to challenge statements or accounts is limited to two years after the date the statement or account is provided to him. The Amended Complaint alleges that statements were delivered "sometime in 2002" (paragraph 16), and claims arising from statements delivered prior to April 19, 2002 (two years before this lawsuit was commenced) may be precluded.
The alleged misrepresentations made by Herzog will not support a fraud or negligent misrepresentation claim. The content of their agreement is not a fact susceptible to a fraud claim — Reinhardt had equal access to that information as Herzog or Ramones Productions. Reinhardt cannot allege reliance on Herzog's statement that The Ramones did not generate royalties because he clearly did not believe Herzog and persisted in demanding payment, and Reinhardt admits that Herzog said royalty payments were available before the 2002 Settlement (Amended Complaint, paragraph 23). The only other alleged misrepresentation — that Herzog would resist paying more than $32,500, or would "make sure" that Reinhardt received no payment if he persisted in his request to see statements — is merely a threat of future conduct and not a misrepresentation of material fact. Accordingly, the fraud and negligent misrepresentation claims are dismissed.
The motion also is granted with respect to the claim for breach of fiduciary duty. A fiduciary relationship is one founded upon trust or confidence reposed by one person in the integrity and fidelity of another ( Apple Records, Inc. v Capital Records, Inc., 137 AD2d 50 [1st Dept 1988]). "It is well settled that the same conduct which may constitute the breach of a contractual obligation may also constitute the breach of a duty arising out of the relationship created by contract but which is independent of the contract itself" ( Mandelblatt v Devon Stores, Inc., 132 AD2d 162, 167-168 [1st Dept 1987]). However, a "conventional business relationship does not create a fiduciary relationship absent other factors" ( Feigen v Advance Capital Mgmt. Corp., 150 AD2d 281, 283 [1st Dept 1989]), such as the existence of a long-term relationship, lack of arms-length negotiations, or entrustment by an artist with a person who promises to manage and develop the artist's career ( see, e.g., Gershunoff v Panov, 77 AD2d 511 [1st Dept 1980] [plaintiff owed fiduciary duty where he was an experienced impresario who took complete charge of managing careers of defendant ballet dancers, who were "babes" in the world of private enterprise and lacked legal representation]). Here, plaintiff had an arms-length relationship with defendants from the time of the 1984 Agreement forward. Even though the relationship continued over a long period of time, for most of that time plaintiff had no contact with defendants, and he did not entrust them with anything more than the correct and timely payment of royalties. The alleged breach of fiduciary duty is a failure to pay royalties in accordance with the specific terms of the 1984 Agreement, which adds nothing to the breach of contract claim. Taken as a whole, plaintiff does not allege more than a conventional business relationship.
The fifth cause of action, which seeks imposition of a constructive trust, likewise is dismissed. "Generally, before granting the equitable remedy of a constructive trust, four elements must be established: (1) a confidential or fiduciary relationship, (2) a promise, express or implied, (3) a transfer in reliance thereon, and (4) unjust enrichment" ( In re Azzinaro, 13 AD3d 618 [2d Dept 2004]). The Amended Complaint does not allege facts showing a fiduciary duty, a transfer in reliance on a promise, or unjust enrichment. Accordingly, it hereby is
ORDERED that defendants' motion to dismiss is granted, and the second, third, fourth and fifth causes of action are dismissed; the Amended Complaint is severed and dismissed as against defendants The John Trust, Taco Tunes, Herzog Strauss and Herzog, and the Clerk of the Court is directed to enter judgment accordingly with costs and disbursements as taxed; and it further is
ORDERED that the motion is granted with respect to the first cause of action for breach of contract to the extent that the surviving claim, against defendant Ramones Productions alone, is limited to claims arising after June 30, 2001, and the motion otherwise is denied; and it further is
ORDERED that counsel shall appear in Part 55 for a preliminary conference on October 20, 2008 at 12 noon.