Opinion
02 CIV. 9731 (DLC)
August 19, 2003
Howard Gotbetter, New York, New York for Plaintiff
Michael S. Miller, Tompkins, McGuire, Wachenfeld Barry, LLP, New York, New York for Defendant
OPINION AND ORDER
Plaintiff, Arthur Shimkin ("Shimkin"), initially filed this action against defendant Tompkins, McGuire, Wachenfeld Barry, LLP ("TMWB") in the Supreme Court of the State of New York, County of New York, on November 8, 2002. The defendant removed this action to this federal district on December 9, 2002, under 28 U.S.C. § 1332, 1441. The complaint alleges that the defendant breached an agreement with plaintiff by withholding (and continuing to withhold) a document that it should have released to plaintiff. The complaint seeks the release of the withheld document and damages.
The defendant has moved to dismiss the complaint pursuant to Rule 12(b)(7), Fed.R.Civ.P., for failure to join an indispensable party under Rule 19, Fed.R.Civ.P. The defendant contends that the withheld document is part of a larger settlement agreement between the plaintiff and a non-party to this action. The plaintiff argues that the withheld document can be released without the participation of this non-party. For the reasons that follow, the defendant's motion is granted.
BACKGROUND
The parties have both offered affidavits and documents in connection with this motion. The following facts provide the background to the dispute. Where the parties disagree as to any critical issue, that dispute is noted.
The plaintiff is a former record producer specializing in the production of children's records. He was principally active during the 1950's and 1960's, initially on behalf of Simon and Schuster as producer of the publisher's "Golden Records" series. He later worked with Abraham Massler ("Massler") in a company known as AA Records ("AA"). During this period, Shimkin acquired a number of copyrights for musical compositions, with the majority of these involving compositions for children. Shimkin's relationship with AA ended in 1967. AA, nonetheless, continued to exploit children's records formerly produced by Shimkin.
In 1968, CBS Records offered Shimkin a position as an executive producer in charge of children's recordings. As a condition of employment, CBS Records required Shimkin to divest himself of his other publishing interests, i.e., companies he owned which held copyright and other interests in children's musical compositions. Shimkin sold these interests to Jack Benanty in 1968, but retained a 25% ownership interest in the copyrights.
In 1972, Jack Benanty, through his three companies, Fairlyand Music Corp., Dorton Music Corp., and Licette Music Corp. (the "Benanty Companies"), commenced an action against AA and Massler for non-payment of royalties regarding masters and compositions for which Shimkin owned the rights. Prior to the resolution of the litigation, Jack Benanty died in 1989, leaving his entire estate to Alice Benanty. Fairyland Music Corp. entered an agreement with Shimkin in 1991, clarifying his interest in any possible recovery in the action against AA and Massler. Following the trial, judgment for approximately $9 million was entered in favor of the Benanty Companies in May 1992. The Benanty Companies had difficulty, however, collecting on the judgment. Ultimately, their primary means of recovery was the seizure of record masters from AA. These masters were sold at a sheriff's sale in May 1994. The sole bidder at the sale and purchaser of the recordings was Alice Benanty. Shimkin was present at the sale.
The Benanty family sold the assets of Jack Benanty's estate, except for the judgment against AA and Massler, to Drive Entertainment, Ltd. ("Drive") in 1996. As part of the sale, the defendant contends that Shimkin expressly acknowledged that Jackal Holdings LLC — the corporate entity which owned the assets of Jack Benanty's estate and was the subject of the sale — had the right to convey ownership of all of these assets "free of any claim" by Shimkin against "any buyer." The Benanty family finally reached a settlement with AA and Massler in 1999, in which title to two properties in New Jersey were conveyed to the Benanty family.
Shimkin, following the sale, accused the Benanty family of "fraudulently" selling assets to Drive that he actually owned. In March 2000, Shimkin filed a lawsuit against Alice Benanty, Charles Benanty (the son of Alice Benanty), Fairyland Music Corp., Licette Music Corp. and Dorton Music Corp. (the "Benanty Parties") in superior court in New Jersey (the "New Jersey Action"). The complaint sought, inter alia, an accounting and declaratory judgment regarding Shimkin's interest in the assets acquired by the Benanty Parties in connection with the judgment against AA and Massler. In the New Jersey Action the Benanty Parties were represented by Christopher Whent ("Whent"), who is licensed to practice in New York. The Benanty Parties retained the defendant to act as their New Jersey counsel.
In October 2000, the parties, without the assistance of TMWB, reached a settlement (the "Settlement Agreement"). The Settlement Agreement was executed on November 20, 2000. The Settlement Agreement essentially provides that Shimkin would execute releases for the Benanty Parties and all possible defendants in exchange for $150,000. The Settlement Agreement contains a clause requiring the parties to keep its contents confidential. The confidentiality clause provides in relevant part: "The substance of this or any other document related to this settlement shall not be disclosed to any third party except as may be required by law." (Emphasis supplied.) The Settlement Agreement also provides that it is
the entire understanding between the parties with respect to the subject matter and no modification of this Agreement shall be binding upon either party unless confirmed by a written instrument signed by the party sought to be bound.
Finally, the Settlement Agreement provides that it "may be executed in any number of counterparts, each of which shall be an original, but all such counterparts shall constitute one and the same document."
The settlement also included an oral "side agreement." As part of the settlement, Charles Benanty and Alice Benanty executed a letter agreement (the "Clarification Letter") which was addressed to Shimkin and delineated the rights the two signatories believe they have to various master recordings and compositions at issue in the New Jersey Action. By agreement of the parties, the Clarification Letter was provided to TMWB to be held in "escrow" for one year at which time it would be released to Shimkin (the "Side Agreement"). The Clarification Letter was executed on November 20 in connection with the Settlement Agreement. Shimkin signed releases as to the Benanty Parties on November 21, 2000, and the New Jersey Action was dismissed with prejudice by stipulation on November 27, 2000.
The parties or their agents have, at times, referred to the Clarification Letter as a "side agreement." The reference to Side Agreement in this Opinion refers only to the parties' agreement about the terms for the release of the Clarification Letter. It does not refer to the contents of the Clarification Letter itself.
Prior to the date when the Clarification Letter was to be released, the relationship between the parties soured. In September 2001, Whent notified TMWB that the Clarification Letter should not be released. Whent informed TMWB that he had filed an action in New York state court on behalf of the Benanty Parties against Shimkin for breaching the terms of the Settlement Agreement (the "New York Action"). Specifically, the complaint in the New York Action alleges that Shimkin breached the confidentiality clause of the Settlement Agreement by sending a letter, dated April 26, 2001, to Universal Studios claiming an ownership interest in master recordings licensed to Universal Studios by Drive and attaching an unsigned copy of the Clarification Letter. While Shimkin did answer the complaint in the New York Action, he did not assert any counterclaims.
Shimkin and his representatives have repeatedly sought to obtain the Clarification Letter from TMWB. TMWB has refused on the grounds that it has been instructed by the Benanty Parties not to release the Clarification Letter.
The status of the New York Action is unclear. Whent asserts that the action was mistakenly marked "settled" by the state court judge. Whent explains that the parties had been on the verge of settling, but that counsel for Shimkin ultimately did not sign the stipulation of settlement. Having been notified that the parties were about to settle, on March 25, 2002, the state court sua sponte, according to Whent, marked the case settled without final confirmation of this fact. Shimkin confirms that the New York Action has been marked settled. Neither party has taken any steps to revive the New York Action since it was marked as settled.
The final draft of the stipulation to settle the New York Action required Shimkin to refrain from contacting any third party regarding recordings discussed in the Settlement Agreement and in the Clarification Letter except as explained in the stipulation. It permitted the Benanty Parties to receive liquidated damages in the amount of $5,000 for any breach of the stipulation terms. In exchange, the stipulation provided that the Benanty Parties would place the Clarification Letter in escrow with their attorney until December 25, 2002, when it would be released to Shimkin.
DISCUSSION
Defendant argues that the Benanty Parties are necessary parties to this action under Rule 19, Fed.R.Civ.P. Rule 19 sets forth a two-step test for determining whether the court must dismiss an action for failure to join an indispensable party. Fed.R.Civ.P. 19; Viacom Int'l, Inc. v. Kearney, 212 F.3d 721, 724 (2d Cir. 2000). First, the court must determine whether an absent party is a "necessary" party under Rule 19(a). Kearney, 212 F.3d at 724. Rule 19(a) provides that the absent party should be joined, if feasible, where:
(1) in the person's absence complete relief cannot be accorded among those already parties, or (2) the person claims an interest relating to the subject of the action and is so situated that the disposition of the action in the person's absence may (i) as a practical matter impair or impede the person's ability to protect that interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations by reason of the claimed interest.
Fed.R.Civ.P. 19(a). If the resolution of the plaintiff's claim would require the definition of a non-party's rights under a contract, "it is likely" that the nonparty is necessary under Rule 19(a). Jonesfilm v. Lion Gate Int'l, 299 F.3d 134, 141 (2d Cir. 2002).
Where the court makes a threshold determination that a party is necessary under Rule 19(a), and joinder of the absent party is not feasible for jurisdictional or other reasons, the court must then determine whether the party is "indispensable" under Rule 19(b). Fed.R.Civ.P. 19(b); Universal Reinsurance Co., Ltd. V. St. Paul Fire Marine Ins. Co., 312 F.3d 82, 87 (2d Cir. 2002). Rule 19(b) provides:
The court shall determine whether in equity and good conscience the action should proceed among the parties before it, or should be dismissed, the absent person being thus regarded as indispensable. The factors to be considered by the court include: first, to what extent a judgment rendered in the person's absence might be prejudicial to the person or those already parties; second, the extent to which, by protective provisions in the judgment, by the shaping of relief, or other measures, the prejudice can be lessened or avoided; third, whether a judgment rendered in the person's absence will be adequate; fourth, whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder.
Fed.R.Civ.P. 19(b). District courts should take a "flexible approach" to deciding whether parties are indispensable, with "very few cases" being terminated due to the absence of nondiverse parties unless there has been a "reasoned determination that their nonjoinder makes just resolution of the action impossible." Universal Reinsurance, 312 F.3d at 87 (citation omitted). If the court determines that a party is indispensable but cannot be feasibly joined to an action, then the court must dismiss the action pursuant to Rule 19(b). Id.; Conntech Dev. Co. v. Univ. of Conn. Educ. Props., Inc., 102 F.3d 677, 681-82 (2d Cir. 1996).
The Benanty Parties are necessary parties to this action under either prong of Rule 19(a)(2). The plaintiff seeks to obtain the Clarification Letter executed by the Benanty Parties and held by their counsel, the defendant, pursuant to the plaintiff's Side Agreement with the Benanty Parties. The Clarification Letter itself was an essential part of the consideration offered by the Benanty Parties in the Settlement Agreement and the proposed stipulation of settlement in the New York Action. The resolution of the instant action without the participation of the Benanty Parties would therefore fundamentally impair their ability to protect their interests and rights under the Settlement Agreement, the Clarification Letter and the Side Agreement, and would expose the defendant to a substantial risk of breaching its obligations to the Benanty Parties.
Shimkin's attempt to categorize the Side Agreement as a distinct collateral agreement between only himself and TMWB fails. The mere fact that TMWB as the agent of the Benanty Parties agreed to perform a function to assist the parties does not create an agreement or contract between TMWB and Shimkin. See Restatement (Second) of Agency § 342 cmt. a (1958)("Ordinarily an agreement to act as an agent, even for the purpose of making donations for the principal or performing the principal's obligations, is not a promise for the benefit of the persons to whom such services are rendered and the agent is not liable to them for a failure to perform in an action of contract.").
Moreover, statements by Shimkin and his attorney confirm that they viewed the Side Agreement as part of the Settlement Agreement. For example, when the attorney who represented Shimkin in the New Jersey Action and who was present at the settlement discussions, recently demanded the Clarification letter on Shimkin's behalf, he stated in his correspondence that the Clarification Letter had been placed in the possession of TMWB "[p]ursuant to the November 2000 settlement Agreement." Shimkin, himself, also admitted in a letter to TMWB on September 29, 2002, that the Clarification Letter "resulted from the settlement agreement between the Benantys and myself concluded on [November 20, 2000]" and that his right to it was discussed in the negotiations leading up to the Settlement Agreement. Neither Shimkin nor his attorney in their letters refer to a separate or independent agreement between Shimkin and TMWB.
Although the Benanty Parties are necessary parties to this action, their joinder would destroy the diversity of the parties, which is the sole basis for subject matter jurisdiction over this action. This action must be dismissed since the Benanty Parties are indispensable parties. In equity and good conscience this action should not proceed without them.
First, as noted above, any judgment rendered in this action would substantially erode the Benanty Parties' ability to protect their interests under the Settlement Agreement and the Side Agreement, since a judgment would have to define their rights under these agreements. Second, the prejudice to the Benanty Parties cannot be reduced by protective provisions in the judgment, the shaping of relief or any other measures. The prejudice here arises from the inability of the Benanty Parties to protect their rights under the respective agreements or their potential right to the possession or control of the Clarification Letter. Finally, Shimkin can still obtain the remedies he seeks if this action is dismissed. He can bring an action in state court — the venue where this action was initially brought by Shimkin — against the real parties in interest to his claims and pursue the relief he seeks here.
CONCLUSION
For the reasons stated, the defendant's motion to dismiss is granted. The Clerk of Court shall close the case.
SO ORDERED.