Summary
holding that Statute of Frauds posed no bar to a cause of action alleging that defendant had licensed use of plaintiffs design by others and required those others to credit it with the design, rather than the plaintiff
Summary of this case from 7773 88 Ontario Limited v. Lencore Acoustics Corp.Opinion
Argued March 19, 1985
Decided May 7, 1985
Appeal from the Appellate Division of the Supreme Court in the First Judicial Department, Kristin B. Glen, J.
Joel L. Hecker and Ellen P. Chapnick for appellant. Albert J. Breneisen and Louis C. Dujmich for respondent.
Plaintiff is a designer who sold to defendant, a fabric manufacturer, a design referred to as "Cook's Stripe." She seeks damages and an injunction in a complaint alleging five causes of action: for breach of an express oral contract or a contract implied in fact; for misrepresentation through false labeling; for unauthorized licensing; for damages to her reputation through the inferior quality of the product licensed; and for interference with her contract relationships. Special Term permitted defendant to amend its answer to allege a Statute of Frauds defense, but concluded that the evidentiary matter presented by defendant was insufficient to warrant the granting of its motion for summary judgment. On appeal to the Appellate Division that court (two Justices dissenting) modified, on the law, by granting defendant's motion dismissing the complaint.
The issues argued before us are the extent to which section 301 of the Copyright Act ( 17 U.S.C. § 301) deprives the courts of New York of subject matter jurisdiction over the causes of action pleaded by plaintiff, and the extent to which General Obligations Law § 5-701 bars such causes of action as are not preempted by the Copyright Act. Although plaintiff disavows reliance on the Copyright Act, she has not disputed that the design which is the basis for her causes of action was copyrightable or that her transaction with defendant took place after the effective date of section 301.
Subdivisions (a) and (b) (3) of section 301 recognize that only "legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright" are preempted ( see, Editorial Photocolor Archives v Granger Collection, 61 N.Y.2d 517). House Report No. 94-1476 states with respect to equivalency that "common law rights of `privacy,' `publicity', and trade secrets * * * would remain unaffected as long as the causes of action contain elements, such as an invasion of personal rights or a breach of trust or confidentiality, that are different in kind from copyright infringement" and that "to the extent that the unfair competition concept known as `interference with contract relations' is merely the equivalent of copyright protection, it would be preempted" (1976 US Code Cong Admin News, at 5748). It notes, however, that "[s]ection 301 is not intended to preempt common law protection in cases involving activities such as false labeling, fraudulent representation, and passing off even where the subject matter involved comes within the scope of the copyright statute" ( id.; emphasis supplied) and that "[n]othing in the bill derogates from the rights of parties to contract with each other and to sue for breaches of contract" ( id.). It follows that plaintiff's first cause of action for breach of contract and her second cause of action for false labeling are not preempted, but that the third, fourth and fifth are, because not different in kind from copyright infringement.
Though not preempted, the first cause of action is, however, barred by General Obligations Law § 5-701, for it alleges that defendant's licensing of others to reproduce the design on products other than fabric was "in direct contravention of the terms of the agreement between plaintiff and defendant" which sold to defendant the right to produce the design solely on fabric. Such a contract limitation, because it cannot be performed within one year from its making, is barred unless in writing ( Tyler v Windels, 227 N.Y. 589, affg 186 App. Div. 698; Montgomery v Futuristic Foods, 66 A.D.2d 64). Plaintiff's full performance of her obligations under the contract within a year is insufficient to take the oral contract out of the statute ( id.) and we decline plaintiff's invitation to hold her unilateral performance sufficient to do so ( see, Montgomery v Futuristic Foods, 66 A.D.2d 64, 66-69, supra).
On the present record, however, the second cause of action cannot be dismissed as barred by the Statute of Frauds. This cause of action alleges not only that defendant licensed use of plaintiff's design by others on products other than fabric but also that it required its licensees to place on their products a credit for the design stating that it was "designed by Waverly", even though defendant knew that the pattern was designed by plaintiff. By so doing, plaintiff argues, defendant was "thereby deceiving the public."
The suggestion of the dissent that the second cause of action is not for false labeling because the words "direct contravention of the terms of the agreement" appear in paragraph 7 of the complaint (part of the first cause of action) is a misreading of the complaint. Paragraph 7 states that the granting of a license by defendant to others "to reproduce the Design on products other than fabric" was in contravention of the agreement. The repetition of paragraph 7 as part of the second cause is but a predicate for paragraph 11, which recites that defendant also required those others to place "on certain of the unauthorized products sold by [the others] a credit for the Design stating it was `designed by Waverly', even though in truth and in fact defendant knew that such pattern was designed by the plaintiff". Thus, the second cause of action is for defendant's misrepresenting the design as its own, not for breach of contract.
Defendant's answer denies those allegations. Defendant argues that it purchased the design for all purposes, not just for use on fabric, but presents nothing to suggest that it was authorized to represent the design as its own rather than plaintiff's. The only evidence in the record bearing on what the contract between the parties was is plaintiff's deposition testimony that "it was ordered as a fabric design." The Statute of Frauds constitutes no bar to the second cause of action if that be true. Defendant's liability on that cause of action will arise, if at all, not from the use of the design on products other than fabric in violation of the contract, but from its violation of the law of unfair competition by misrepresenting the design, which it knew to be plaintiff's, as its own ( see, International News Serv. v Associated Press, 248 U.S. 215; Electrolux Corp. v Val-Worth, Inc., 6 N.Y.2d 556, 567; Germanov v Standard Unbreakable Watch Crystals, 283 N.Y. 1, 18-19; Gotham Music Serv. v Denton Haskins Music Pub. Co., 259 N.Y. 86, 90; Fisher v Star Co., 231 N.Y. 414, 427; Dior v Milton, 2 A.D.2d 878, affg 9 Misc.2d 425; Metropolitan Opera Assn. v Wagner-Nichols Recorder Corp., 279 App. Div. 632, affg 199 Misc. 786; Madison Sq. Garden Corp. v Universal Pictures Co., 255 App. Div. 459, 464; but see, White Studio v Dreyfoos, 221 N.Y. 46, 48 ; Kaylon, Inc. v Collegiate Mfg. Co., 255 App. Div. 209, 210).
If in fact plaintiff sold only the right to use the design on fabric, the use of it in other and deceitful ways is no less a tort because it has its genesis in contract, for it is "plain that a contracting party may be charged with a separate tort liability arising from a breach of duty distinct from, or in addition to, the breach of contract" ( North Shore Bottling Co. v Schmidt Sons, 22 N.Y.2d 171, 179), as when it springs "from extraneous circumstances, not constituting elements of the contract as such although connected with and dependent upon it, and born of that wider range of legal duty which is due from every man to his fellow, to respect his rights of property and person, and refrain from invading them by force or fraud" ( Rich v New York Cent. Hudson Riv. R.R. Co., 87 N.Y. 382, 398; and see, Fantis Foods v Standard Importing Co., 49 N.Y.2d 317, 324; Albemarle Theatre v Bayberry Realty Corp., 27 A.D.2d 172).
Thus, plaintiff's second cause of action has not been demonstrated to be dismissible on the preemption and Statute of Frauds grounds urged by defendant. Not argued by defendant and, therefore, not considered by us is whether on the facts plaintiff can establish her cause of action. Accordingly, the order of the Appellate Division should be modified by reinstating the second cause of action, without prejudice, however, if defendant be so advised, to a further motion for summary judgment as to that cause of action, and except as so modified the Appellate Division's order should be affirmed, with costs, to appellant.
Chief Judge WACHTLER and Judges JASEN, MEYER and KANE concur in Per Curiam opinion; Judge KAYE dissents in part and votes to affirm in a separate opinion in which Judge SIMONS concurs; Judge ALEXANDER taking no part.
Designated pursuant to N Y Constitution, article VI, § 2.
Order modified in accordance with the opinion herein and, as so modified, affirmed, with costs to plaintiff.
I concur in the majority's conclusions that the third, fourth and fifth causes of action are preempted by the Copyright Act, and the first cause of action — while not preempted — must fail by reason of the Statute of Frauds. But I respectfully dissent with respect to the surviving cause of action for "misrepresentation through false labeling." With the understanding that the court does not today decide whether a cause of action for common-law misappropriation is preempted by the Copyright Act, I agree with so much of the majority's holding as states the legal principle that an action for "false labeling" may be maintained notwithstanding Federal preemption. I cannot, however, agree with the application of that principle to the facts of this.
It is well to begin by focusing on the complaint, particularly the second cause of action, characterized as one for "misrepresentation through false labeling" — which are the words of the majority, nowhere found in the complaint. In the second cause of action, after identifying the parties, plaintiff alleges that she sold to defendant the right to produce her design solely on fabric and that defendant without authorization thereafter licensed Sunweave Linen Corp. and Lord Taylor to reproduce the design on products other than fabric "in direct contravention of the terms of the agreement between plaintiff and defendant." Plaintiff concludes: "Defendant required Sunweave and Lord Taylor, to place on certain of the unauthorized products sold by Sunweave and Lord Taylor, containing the Design, a credit for the Design stating it was `designed by Waverly', even though in truth and in fact defendant knew that such pattern was designed by the plaintiff, to the damage of the plaintiff in the sum of $25,000." It is undisputed that the contract referred to by plaintiff was never reduced to writing.
The oral contract is thus plainly at the heart of the second cause of action. Plaintiff contends that she sold a limited right, permitting defendant to use the design solely on fabric and wallpaper, while defendant claims that it purchased all of plaintiff's right, title and interest in the design, and consequently that its use was unrestricted. If plaintiff sold a limited right only — her version of the contract — defendant breached the contract and thereby misappropriated the design and misrepresented ownership. If plaintiff sold defendant all rights in the design — defendant's version of the contract — then it could lawfully place its own name on and market its property, without further permission from plaintiff.
Even if the second cause of action were not preempted by Federal law, still there would be no enforceable claim because of the Statute of Frauds. The very design of the Statute of Frauds was "not to trust to the memory of witnesses for a longer time than one year." ( Smith v Westfall, 1 Lord Raymond 316, 317 [1697], quoted in D N Boening v Kirsch Beverages, 63 N.Y.2d 449, 454.) The requirement of a writing assures that there will be reliable evidence of the terms of a contract, an objective which is defeated and circumvented by permitting plaintiff, in a dispute over the terms of a contract, to enforce what is merely one version of the contract in the guise of a tort.
A reading of the second cause of action as pleaded in the complaint reveals that it is not, as the majority describes, premised on "unfair competition" (majority opn, at p 79), but — to use plaintiff's own words — on "direct contravention of the terms of the agreement between plaintiff and defendant." (Complaint ¶ 7.) In contracts for the sale of products, any purchaser exercising dominion over the products, including placing its name on what it believes it rightly owns, can be said by a seller charging breach of contract to be misappropriating, misrepresenting, falsely labeling, or using the property in "other and deceitful ways" (majority opn, at p 80, n 2), but a contract action does not without more become a tort action. In the cases cited by the majority for the proposition that the use of property in "other and deceitful ways" may give rise to a tort action — North Shore Bottling ( 22 N.Y.2d 171), Rich ( 87 N.Y. 382), Fantis Foods ( 49 N.Y.2d 317) and Albemarle Theatre ( 27 A.D.2d 172) (majority opn, at p 80, n 2) — there was not, as here, a fundamental dispute regarding the terms of the contract, which would itself be wholly determinative of the "tort" issue.
Characterization of the alleged breach of contract as a tort does not breathe vitality into a contract otherwise unenforceable for want of a writing. ( See, e.g., Intercontinental Planning v Daystrom, Inc., 30 A.D.2d 519, affd 24 N.Y.2d 372.) Not one of the misappropriation cases cited by the majority (majority opn, at pp 79-80) involves an acknowledged contract between the parties permitting defendant in the first instance to use plaintiff's property, and a mere dispute as to the reach of the contract.
We have only recently reaffirmed the principle with respect to the Statute of Limitations that where an action is fundamentally contractual, plaintiff cannot rely on incidental allegations of fraud to keep its lawsuit viable. ( Queensbury Union Free School Dist. v Walter Corp., 101 A.D.2d 992, 993, affd 64 N.Y.2d 964.) By the same token, plaintiff should not be permitted to avoid the Statute of Frauds by enforcing an oral contract as a tort action for "false labeling."
I would therefore affirm the Appellate Division order in its entirety.