Opinion
00 Civ. 5686 (LAK)
December 3, 2001
ORDER
The background of this litigation is set forth in a prior opinion, Archie Comic Publications, Inc. v. DeCarlo, 141 F. Supp.2d 428 (S.D.N.Y. 2001), as well as in an opinion in a preceding case between these parties, DeCarlo v. Archie Comic Publications, Inc., 127 F. Supp.2d 497 (S.D.N.Y. 2001), aff'd, 2001 U.S. App. LEXIS 11671 (2d Cir. June 1, 2001) (the "DeCarlo" case). Defendant now moves to dismiss the first, fourth, fifth and sixth causes of action in plaintiff's second supplemental complaint. The causes of action at issue are as follows:
• The first seeks a declaration that defendant is barred from challenging plaintiff's exclusive ownership of all right, title and interest in and to the so-called Josie property, which was the subject of the DeCarlo case, as well as the so-called Sabrina and Cheryl Blossom Properties, other comic strips that defendant has drawn for plaintiff over the years, as well as a determination that he is barred from pursuing any action against plaintiff, its licensees or anyone else based on any claim that he owns any interest in this properties. It asserts that any such claim would be barred by any or all of the statute of limitations, laches, estoppel, defendant's assignment of any rights to plaintiff, and principles of former adjudication, to mention the most prominent theories.
• The fourth seeks a declaration that notices of termination of alleged grants by defendant to plaintiff of rights in the Josie and Sabrina properties, purportedly served under 17 U.S.C. § 203, are invalid.
• The fifth seeks an injunction barring defendant from serving or recording any notice of termination of copyright pursuant to 17 U.S.C. § 203 or from bringing any claim with respect to these properties based the premise that defendant owns the copyrights on essentially the same theories as the first cause of action.
• The sixth seeks damage for breach of contract, contending that a number of actions taken by defendant on or after April 3, 2000 were inconsistent with defendant's obligations under paragraph 20 of the 1996 Agreement described in the opinion in the DeCarlo case.
The First Cause of Action
Defendant's attack on the legal sufficiency of the first cause of action essentially takes two tacks. First, it quarrels with the precise wording of the declaration that plaintiff seeks, contending for example, that the grounds upon which plaintiff rests this claim would not justify a declaration that defendant is not entitled to sue some stranger to this dispute on a claim premised on defendant's alleged ownership of rights in these properties. Second, it disputes the merits of some of the alternative grounds upon which plaintiff seeks relief. In the Court's view, defendant misconceives the nature of a declaratory judgment action and a court's role in passing on a motion to dismiss such a complaint.To begin with, the indispensable prerequisites for declaratory relief are the existence of a live, definite and concrete controversy between adverse parties and circumstances making a binding judicial declaration useful in establishing their rights. E.R. Squibb Sons, Inc. v. Lloyd's Cos., 241 F.3d 154, 177 (2d Cir. 2001) (quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 241 (1937)). Although the issuance of a declaratory judgment, even where these prerequisites are present, remains discretionary, Wilton v. Seven Falls Co., 515 U.S. 277 (1995); Agency Rent A Car System, Inc. v. Grand Rent A Car Corp., 98 F.3d 25, 32 (2d Cir. 1996); In re Orion Pictures Corp., 4 F.3d 1095, 1100 (2d Cir. 1993), cert. denied, 511 U.S. 1026 (1994); Trans Pacific Leasing Corp. v. Aero Micronesia, Inc., 26 F. Supp.2d 698, 712 (S.D.N.Y. 1998); Goldberg v. Winston Morrone, P.C., No. 95 Civ. 9282 (LAK), 1997 WL 139526, at *3 (S.D.N.Y. Mar. 26, 1997), their presence often is sufficient to warrant judicial intervention. Once a court concludes that declaratory relief is appropriate, the precise wording of the decree relates to the form rather than to the propriety of relief. See e.g., Starter Corp. v. Converse, Inc., 170 F.3d 286 (2d Cir. 1999) (upholding propriety of district court's grant of injunctive relief, but reducing the scope of such relief), Todaro v. Ward, 565 F.2d 48, 54 n. 7 (2d Cir. 1977) (explaining, in the context of constitutional violations, that district court has broad discretion to fashion equitable remedies once their appropriateness has been established so long as the remedy is commensurate with the scope of the violation).
Second, federal district courts are obliged to sustain the legal sufficiency of a complaint subject to the ordinary principles of notice pleading as long as the plaintiff could establish any facts under the pleading that would entitle it to relief. E.g., Conley v. Gibson, 357 U.S. 41, 45-46 (1955).
In this case, the existence of an actual controversy between adverse parties with respect to ownership of rights in the Josie, Sabrina and Cheryl Blossom properties is undisputed and obvious. Further, notwithstanding the prior decision in the DeCarlo case, that controversy appears to extend to the Josie property because there is every reason to believe that defendant, whose litigiousness is patent, will seek to assert claims against third parties with whom plaintiff has contracted or with whom it seeks to contract in the future for exploitation of its claimed rights in the property. In consequence, the Court is in no position to say at this juncture that an appropriately worded declaratory judgment would not serve a useful purpose in quieting the parties' dispute or that its issuance would be an inappropriate exercise of discretion. Indeed, if the defendant were correct in asserting that the grounds upon which plaintiff seeks a declaration in its favor all are insufficient, the defendant likely would be entitled to a declaration in his favor, as a legally sufficient claim for a declaratory judgment depends on satisfying the requirements for issuance of a declaration, not upon satisfying the requirements for a declaration in favor of the party who first seeks it. See Int'l Longshoremen's Assn. v. Seatrain Lines, Inc., 326 F.2d 916, 920-21 (2d Cir. 1964). For example, the parties here dispute whether the expiration of the statute of limitations on defendant's claim of ownership of the copyright in the Josie property precludes defendant from suing the plaintiff or others for copyright infringement in respect of alleged infringements that occur within the three years immediately preceding the commencement of the action. A declaration of rights on that point may well be of considerable assistance to the parties, whichever way those rights are declared; defendant, in other words, might prevail and obtain a declaration that he is not so precluded.
In these circumstances, the Court is satisfied that the first cause of action states a legally sufficient claim for a declaratory judgment. There is no need to consider the legal sufficiency of each of the grounds on the basis of which plaintiff contends that the declaration should be in its favor.
Fourth Cause of Action
In September 2000, defendant served purported notices of termination of the grant and licenses of copyrights to derivative works made in the 1988 and 1996 Agreements referred to in the opinion in the DeCarlo case. The fourth cause of action seeks a declaration that those notices are invalid on the ground that they were served prematurely. Defendant seeks dismissal of this claim on the ground that the notices were not premature. As the foregoing discussion indicates, the motion is not well founded, as it overlooks the difference between a claim for a declaration of rights and the substance of the declaration that might be entered in the event a declaration is appropriate. Nevertheless, as the issue tendered is purely one of law and inevitably must be addressed in this action, it is useful to decide it now.
Section 203 of the Copyright Act gives copyright owners an inalienable right to terminate grants or licenses after appropriate periods of time. 17 U.S.C. § 203. Its object is to ensure that authors who license or transfer their rights at a time when the works perhaps are unknown or unappreciated, only later to see their transferees reap enormous economic benefits, have an opportunity at some point to share in the success of their creative efforts. See Mills Music, Inc. v. Snyder, 469 U.S. 153, 172-73, (1985); Woods v. Bourne, 60 F.3d 978, 982 (2d Cir. 1995). On the other hand, premature attempts by transferors to terminate rights can have a very disruptive impact on the ability of transferees to exploit the rights that they have obtained as, for example, by making third parties whose assistance in exploiting the rights is needed reluctant to enter into arrangements with transferees. Thus, as so often is the case, timing is everything.
The timing of termination notices is governed by Section 203(a)(3) of the Act, which provides that:
"Termination of the grant may be effected [1] at any time during a period of five years beginning at the end of thirty-five years from the date of execution of the grant; or [2], if the grant covers the right of publication of the work, the period begins at the end of thirty-five years from the date of publication of the work under the grant or [3] at the end of forty years from the date of execution of the grant, whichever term ends earlier." 17 U.S.C. § 203(a)(3).
Defendant here implicitly contends that the underlying works, copyright to which allegedly was assigned by the 1988 and 1996 Agreements, were published in the fall of 1967 and that he is entitled to terminate the grants effected by those Agreements effective in the fall of 2002, the thirty-fifth anniversary of publication. He relies on clause [2] quoted above. As plaintiff contends, however, he is mistaken because he overlooks the significance of the phrase "under the grant" in that clause.
Clauses [2] and [3] together set forth a method of computation that is an alternative to the five year window following the thirty-fifth anniversary from the date of the grant set forth in clause [1]. This alternative method of computation, however, by the express terms of the statute, applies only where the grant to which the termination is addressed "covers publication of the work." Where the work is published pursuant to the grant, the original copyright owner may terminate at the earlier of forty years from the execution of the grant or thirty-five years from the date of publication. As explained in House Report No. 94-1476, "[t]he alternative method of computation is intended to cover cases where years elapse between the signing of a publication contract and the eventual publication of the work." H.R. REP. NO. 94-1476, at 126 (1976). It "was added at the behest of book publishers who argued that a straight period of thirty-five years from execution of the grant could give them a shorter time to exploit a work, because a number of publication contracts are signed before the work is written, and years may elapse before it is completed and published." 3 MELVILLE B. NIMMER DAVID NIMMER, NIMMER ON COPYRIGHT § 11.05[A], at 11-40.9 (2001). It therefore does not apply where, as here, the copyrights in previously published works are assigned. In consequence, any right that defendant may have to terminate rights transferred pursuant to the 1988 and 1996 Agreements must be exercised during the five year period beginning at the end of thirty-five years from the date on which the relevant grants were executed. There is, accordingly, no merit to defendant's motion insofar as it is addressed to the fourth cause of action.
Fifth Cause of Action
As noted, the fifth cause of action, which seeks an injunction, is based on substantially the same grounds as the first. Defendant moves for its dismissal on the ground that none of the various bases for relief relied upon by plaintiff could possibly warrant the particular relief it seeks, especially an injunction against defendant seeking an injunction against a third party based on a claim of ownership of the copyrights.
This branch of the motion does not suffer from the principal deficiency as that addressed to the first cause of action; if defendant is correct that none of the grounds relied upon by plaintiff could possibly result in relief, then he would be entitled to dismissal as a matter of right. But he is not.
Plaintiff seeks an injunction barring defendant from, inter alia, "making any . . . claim premised on the assertion that [he] has and/or ever has had any rights in the copyrights to the" properties. Cpt. ¶ 68. It contends that it is entitled to this relief on the ground, among others, that any such claims are barred by the statute of limitations.
In the DeCarlo case, this Court held, on the authority of Merchant v. Levy, 92 F.3d 51 (2d Cir. 1996), that defendant's contention that he rather than plaintiff owned the copyright in the Josie characters was barred by the statute of limitations. DeCarlo, 127 F. Supp.2d at 506-08. At least as far as the Josie characters are concerned, DeCarlo conclusively determined the issue. So all that remains is defendant's contention that he is free to sue plaintiff and others based on claims for infringement arising within the three year period immediately preceding the filing of any complaint.
Although defendant devotes some energy to the assertion that the ruling is not binding in this case, the point is academic. Regardless of whether it is binding as a matter of principles of former adjudication, this Court would reach the same result for the same reasons here.
Defendant's position on this issue makes little sense and is against the great weight of authority. In order to make out a case for copyright infringement, a plaintiff must establish ownership of a valid copyright plus copying. Feist Publ'ns, Inc. v. Rural Tel. Servs., Inc., 499 U.S. 340, 361 (1991); Diamond Direct, LLC v. Star Diamond Group, Inc., 116 F. Supp.2d 525, 527 (S.D.N.Y. 2000); Eastern America Trio Prods., Inc. v. Tang Electronic Copr., 97 F. Supp.2d 395, 414-15 (S.D.N.Y. 2000). At least as between defendant and plaintiff and, in all likelihood, those claiming by, through or under plaintiff, the defendant cannot possibly establish ownership of a valid copyright with respect to the Josie property because, as between plaintiff and defendant, defendant has lost that argument. Defendant therefore cannot possibly establish the elements of a claim for copyright infringement against plaintiff and its mesne and ultimate licensees and assignees with respect to the Josie characters. See, e.g., General Chem. Co. v. Standard Wholesale Phosphate Acid Works, Inc., 101 F.2d 178 (4th Cir. 1939), cited with approval in Bechik Prods., Inc. v. Flexible Prods., Inc., 225 F.2d 603, 606 (2d Cir. 1955), Ideal Toy Corp. v. Kenner Prods. Div. of Gen. Mills Fun Group, 77 Civ. 4375 (CHT), 1977 U.S. Dist. LEXIS 13291 (S.D.N.Y. Oct. 26, 1977). If plaintiff can establish the other prerequisites to injunctive relief, it would be entitled to the injunction it seeks by the fifth cause of action.
There is, of course, more to the fifth cause of action and to defendant's arguments. The extent to which any injunction to which plaintiff might be entitled properly should affect defendant's right to bring claims against strangers to this litigation, for example, is an open question. The point, however, is that this Court may not now dismiss the fifth cause of action unless it now is clear that plaintiff cannot prove any facts that would entitle it to any relief on this claim. E.g., Conley, supra. The foregoing discussion demonstrates that this is not the case. There is no need at this juncture to accept defendant's invitation to attempt to formulate a decree even in advance of plaintiff's establishing that it is entitled to one.
Sixth Cause of Action
This cause of action, as limited by plaintiff's brief, contends that defendant's July 19, 2000 cease and desist letter to plaintiff, its service and recording of the Sabrina and Josie notices of termination, and its interposition of counterclaims in this action breached paragraph 20 of the 1996 Agreement in which defendant covenanted that he "will not take any action that is inconsistent with or that limits or challenges [plaintiff's] exclusive right to exploit the Works and/or the Properties. . . ." It seeks damages, other than attorney's fees and litigation costs, incurred in consequence of these actions. Defendant seeks dismissal of this claim on the ground that the applicability of paragraph 20 was litigated in the DeCarlo action and plaintiff's position rejected. In consequence, he argues, the claims as to the Josie characters are barred by claim preclusion and the claims as to the Sabrina and Cheryl Blossom characters by issue preclusion.
Pl. Mem. 31-32.
In DeCarlo, plaintiff (in this case) interposed a counterclaim seeking to recover its litigation and related costs in the defense of that action on the theory that defendant's commencement and maintenance of the suit breached paragraph 20. The Court dismissed that counterclaim on the ground that "an agreement may not require indemnification for attorneys fees unless the intention to indemnify `is unmistakably clear from the language of the promise.'" DeCarlo, 127 F. Supp.2d at 512 (quoting Coastal Power Int'l, Ltd. v. Transcontinental Capital Corp., 10 F. Supp.2d 345, 370 (S.D.N.Y. 1998) (in turn quoting Hooper Associates, Ltd. v. AGS Computers, Inc., 74 N.Y.2d 487, 491, 549 N.Y.S.2d 365, 366 (1989)), aff'd. 182 F.3d 163 (2d Cir. 1999)).
Insofar as defendant relies on issue preclusion, the argument is entirely frivolous. Issue preclusion applies where the issue in question was actually litigated and necessarily decided in prior litigation between the parties or their privies. Sullivan v. Gagnier, 225 F.3d 161, 166 (2d Cir. 2000); Parker v. Blauvelt Volunteer Fire Co., 93 N.Y.2d 343, 349, 690 N.Y.S.2d 478, 482 (1999).
The issues raised here were neither actually litigated nor necessarily decided in DeCarlo. Claim preclusion is broader than issue preclusion, extending to all claims arising out of the same transaction or series of transactions that were the subject of the prior suit or that could have been raised in the prior litigation. Maharaj v. Bankamerica Corp., 128 F.3d 94, 97 (2d Cir. 1997) (quoting Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981)). The dispositive questions therefore are whether the claims asserted in the sixth cause of action might have been asserted in DeCarlo and, if so, whether they arise out of the same series of transactions as the claims raised in DeCarlo, and therefore should have been asserted in DeCarlo.
All of the transactions underlying the sixth cause of action occurred before the DeCarlo case was concluded: the cease and desist letter on July 19, 2000, the letters of termination on September 12 and 19, 2000, and the interposition of counterclaims in this action on August 25, 2000. Thus, the claims based upon them could have been asserted in DeCarlo from a strictly temporal standpoint. However, in the realm of claim preclusion, it is the filing of the action in question, and not the termination of the case, that is the key date. Curtis v. Citibank, 226 F.3d 113 (2d Cir. 2000), Prime Mgmt. Co., Inc. v. Steinegger, 904 F.2d 811, 816 (2d Cir. 1990). The DeCarlo case was commenced on March 6, 2000 and was removed to this Court on March 28, 2000.
Plaintiff (here) filed its counterclaims in DeCarlo on April 3, 2000. Any claims in the instant action that arise out of the three letters or DeCarlo's interposition of counterclaims could not have been filed on March 6 or April 3, 2000 as the events giving rise to the claims had not yet occurred. Plaintiff's sixth cause of action therefore is not barred by the doctrine of claim preclusion.
Conclusion
For the foregoing reason, defendant's motion to dismiss the first, fourth, fifth and sixth cause of action is denied. Plaintiff's motion for leave to file a surreply brief in opposition to the motion to dismiss is denied as moot.
SO ORDERED.