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Robinson v. Sanctuary Record Groups, Ltd.

United States District Court, S.D. New York
Mar 25, 2008
542 F. Supp. 2d 284 (S.D.N.Y. 2008)

Summary

explaining that although default establishes liability, a plaintiff is still "required to prove damages with `reasonable certainty'"

Summary of this case from Trinity Biotech, Inc. v. Reidy

Opinion

No. 03 CV 10235(VM).

March 25, 2008.

James P. Cinque, Cinque Cinque, Oren J. Warshavsky, Troutman Sanders LLP, New York City, for Plaintiffs.

Helene Marian Freeman, Dorsey Whitney LLP, New York City, for Defendants.


DECISION AND ORDER


Plaintiffs Sylvia Robinson ("S. Robinson"), Sylvia, Inc. ("Sylvia"), and Joseph Robinson, Jr. ("J. Robinson"), individually and as a member of "The Sugar Hill Gang" ("The Sugar Hill Gang"); Henry Jackson ("Jackson") and Michael Wright ("Wright"), professionally known as "The Sugar Hill Gang"; and George Kerr ("Kerr"), Wesaline Music ("Wesaline"), Jonathan Williams ("Williams"), Clifton Chase ("Chase"), and Edward Fletcher ("Fletcher") (collectively, "Plaintiffs") brought this action against defendants Sanctuary Records Group, Ltd. ("Sanctuary Records") and Sanctuary Copyrights, Ltd. ("Sanctuary Copyrights") (collectively, "Defendants" or "Sanctuary"). A default judgment was entered against Defendants on May 28, 2004 by Order of the Honorable Richard Owen (the "Default Judgment"), who then referred the matter to Magistrate Judge Gabriel W. Gorenstein to hear and determine the amount of damages. On March 30, 2006, Magistrate Judge Gorenstein issued a Report and Recommendation (the "Report") concluding that Plaintiffs should not be granted any amount of damages because they had failed to sufficiently establish grounds for any award. After receiving Plaintiffs' Objections to the Report, dated April 10, 2006 ("Pls.' Objections"), Judge Owen held a bench trial (the "Trial") from May 29, 2007 through June 1, 2007 on the sole issue of damages. For the reasons stated below, the Court, having conducted a de novo review, adopts the recommendation of the Report insofar as it is relevant to this Court's conclusions, and supplements Magistrate Judge Gorenstein's analysis in accordance with this Court's own review of the Report, Trial, and factual record. Based on its review, the Court finds that Plaintiffs have not met their burden of proving reasonable damages. Accordingly, Plaintiffs shall be awarded no damages.

By Order Denying Motion to Vacate Default Judgment and Granting Cross-Motion to Substitute Defendants, dated July 30, 2004 (the "Substitution Order"), defendants Sanctuary Records and Sanctuary Copyrights were substituted for Sanctuary Music. See infra Part I.

I. BACKGROUND

The following factual summary derives primarily from the Complaint, dated December 22, 2003 (the "Compl."); Default Judgment; Substitution Order; Plaintiffs' Proposed Findings of Fact and Conclusions of Law, dated June 14, 2005; Declaration of James P. Cinque ("Cinque") in Support of Plaintiffs' Damages Application, dated June 14, 2005 ("Cinque Declaration"); Report; Opinion Letter from Cohen to J. Robinson, dated March 16, 2007 (the "Opinion"); Defendants' Pre-Trial Findings of Fact and Conclusions of Law, dated March 19, 2007; Pls.' Objections; Memorandum of Law in Support of Defendants' Motion in limine, dated April 17, 2007; Defendants' Response to Pls.' Objections, dated April 24, 2006; Memorandum of Points and Authorities in Opposition to Defendants' Motion in Limine, dated May 2, 2007; Trial Transcript, dated May 29, 2007 through June 1, 2007 ("Trial Tr."). Except where specifically referenced, no further citation to these sources will be made.

On December 22, 2003, Plaintiffs, who are artists and record producers, filed the Complaint against "Sanctuary Music," seeking rescission of certain musical recording agreements (the "Agreements"), and incidental damages flowing from exploitation of Plaintiffs' musical recordings or, in the alternative, an order directing "Sanctuary to account and pay [P]laintiffs all royalties due to them pursuant to the terms of the Agreements." (Compl. ¶ 40.) Because Sanctuary Music failed to file an Answer, on May 28, 2004, Judge Owen entered the Default Judgment ordering Sanctuary Music to "pay [P] laintiffs all monies received by [Defendants] in connection with [Defendants] exploitation of [P]laintiffs' recordings since May 31, 1995," and referring the matter to Magistrate Judge Gorenstein "to hear and determine the amount of money received by [Defendants] from the exploitation of Plaintiffs' recordings since May 31, 1995, plus interest." (Default Judgment 3.) Defendants unsuccessfully moved to vacate the Default Judgment on the ground that they were not properly served, and Plaintiffs successfully cross-moved to amend the Complaint nunc pro tune, substituting defendants Sanctuary Records and Sanctuary Copyrights in place of Sanctuary Music.

The Agreements include: an agreement dated May 15, 1970 between S. Robinson and Platinum Record Company, Inc,; an agreement dated January 3, 1982 between S. Robinson and Sugar Hill, Records Ltd. ("Sugar Hill Records"); an agreement dated in or about 1970 between S. Robinson and All Platinum Record Company ("All Platinum"); an agreement dated in or about 1980 between S. Robinson and Sylvia; an agreement dated July 25, 1981 between J. Robinson and Sugar Hill Records; an agreement dated in or about 1980 between J. Robinson and Sugar Hill Records; an agreement dated August 25, 1979 between Jackson, Wright, Guy O'Brien ("O'Brien") and Sylvia; an agreement dated in or about 1980 between Jackson, Wright, O'Brien and Sugar Hill Records; an agreement dated May 6, 1971 between Kerr and All Platinum; an agreement dated in or about 1994 or 1995 between Wesaline and Sugar Hill Records; an agreement dated in or about 1975 between Williams and All Platinum; an agreement dated April 7, 1976 between Williams and All Platinum; an agreement dated in or about 1980 between Chase and Sugar Hill Records; and an agreement dated October 11, 1981 between Fletcher and Sugar Hill Records.

Magistrate Judge Gorenstein presided over an extensive damages inquest. For five months in the latter half of 2004, the parties engaged in acrimonious discovery disputes which came to a head in a motion to compel argued before Magistrate Judge Gorenstein on November 29, 2004. Defendants took the position that they were not obligated to participate in discovery because the Default Judgment rendered Plaintiffs ineligible to take discovery. At oral argument, however, Defendants changed their position and agreed to participate in discovery. By Order dated December 2, 2004, Magistrate Judge Gorenstein directed that "Plaintiffs Proposed Findings of Fact should specifically tie the proposed damages figure(s) to the legal claim(s) on which liability has been established; should demonstrate how [Plaintiffs have] arrived at the proposed damages figure(s); and should be supported by one or more affidavits." (Scheduling Order For Damages Inquest, dated December 2, 2004.) After further discovery disputes and extensions to the briefing schedule, the parties filed their briefs. Following review of the parties' submissions, Magistrate Judge Gorenstein directed additional briefing on certain issues. Although it is unclear from the record, Plaintiffs sought either $343,807,995.30 or $234,681,227.30 in damages. Defendants argued that Plaintiffs were not entitled to damages. Neither party requested a hearing.

On March 30, 2006, Magistrate Judge Gorenstein issued the Report concluding thac Plaintiffs should not be awarded any damages for two reasons. First, in considering the calculation of damages, Plaintiffs concede that they sought recovery of damages only for rescission, and they did not seek damages for breach of contract. Second, Plaintiffs were owed no damages incidental to rescission because Plaintiffs did not establish which recordings were the subject matter of the Agreements, thus making any reasonable calculation of the extent of Defendants' exploitation revenue impossible.

Despite Magistrate Judge Gorenstein's direction to Plaintiffs to "specifically tie" their damages to the legal claims upon which liability was established, the length of the damages inquest, and the volume of submissions, Plaintiffs failed to submit any evidence tying their damages to their legal claims. Plaintiffs did not even submit the majority of the Agreements at issue. Magistrate Judge Gorenstein concluded that Plaintiffs had not met their burden of specifically tying damages to the rescinded Agreements, specifically concluding that "[t]here is no basis on which this Court can make findings of the amount by which Sanctuary was unjustly enriched through its exploitation of the recordings that were the subject matter of the Agreements." (Report 16.)

Plaintiffs filed objections to Magistrate Judge Gorenstein's Report on April 10, 2006, arguing that the Court should make a de novo damages assessment. The Court agreed, and Judge Owen conducted the Trial from May 29, 2007 through June 1, 2007. Prior to the Trial, on April 17, 2007, Defendants made a motion in limine to exclude any evidence offered by Plaintiffs concerning claims or contracts that were not pleaded in the Complaint. Plaintiffs submitted a written response on May 2, 2007.

II. DISCUSSION

A. REPORT AND RECOMMENDATION

A district court evaluating a magistrate judge's report may adopt those portions to which no "specific, written objection" is made, as long as the factual and legal bases supporting the findings and conclusions set forth in those sections are not clearly erroneous or contrary to law. See Fed.R.Civ.P. 72(b);Thomas v. Arn, 474 U.S. 140, 149 (1985); Greene v. WCI Holding Corp., 956 F. Supp. 509, 513 (S.D.N.Y. 1997). A district court is not required to review any portion of a magistrate judge's report that is not the subject of an objection. See Thomas, 474 U.S. at 149. However "the district judge retains the power to engage in sua sponte review of any portion of the magistrate's report and recommendation, regardless of the absence of objections."Cespedes v. Coughlin, 956 F. Supp. 454, 463 (S.D.N.Y. 1997) (citations and quotation marks omitted). "Where a party makes a `specific written objection . . . after being served with a copy of the [magistrate judge's] recommended disposition,' however, the district court is required to make a de novo determination regarding those parts of the report." Cespedes, 956 F. Supp. at 463 (quoting United States v. Raddatz, 447 U.S. 667, 676 (1980)). In making its determination, a district judge "may accept, reject or modify the recommended decision, receive further evidence, or return the matter to the magistrate judge with instructions." Fed.R.Civ.P. 72(b); DeLuca v. Lord, 858 F. Supp. 1330, 1345 (S.D.N.Y. 1994).

B. DEFAULT DAMAGES

When a default judgment is entered, a plaintiff is required to prove damages with "reasonable certainty," Credit Lyonnais Sec. (USA) v. Alcantara, 183 F.3d 151, 152 (2d Cir. 1999), using competent evidence, see Transatlantic Marine Claims Agency, Inc., v. Ace Shipping Corp., 109 F.3d 105; Fustok v. ContiCommodity Servs., Inc., 873 F.2d 38, 40 (2d Cir. 1989). When plaintiffs rely on expert testimony and reports, such testimony and reports must have the "required indicia of scientific reliability." Nimely v. City of New York, 414 F.3d 381, 397 (2d Cir. 2005) (citing Daubert v. Merrell Dow Pharms. Inc., 509 U.S. 579, 589, 113, S.Ct. 2786, 125 L.Ed.2d 469 (1993)). Here, Plaintiffs' recovery under the Default Judgment is based on the rescission of the rights conveyed in the Agreements. Therefore, Plaintiffs bear the burden of proving the amount of damages owed from Defendants' exploitation of Plaintiffs' recordings that were the subject matter of the Agreements. See Greyhound Exhibitgroup. Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 160 (2d Cir. 1992) (observing that plaintiff "bore the burden of proving . . . each item of damage it claimed" at the inquest); Trans World Airlines, Inc. v. Hughes, 449 F.2d 51, 70 (2d Cir. 1971), rev'd on other grounds, 409 U.S. 363 (1973) (requiring plaintiff to "establish that [its] damages were attributable to" its cause of action for which it received a default judgment). In order to prove their damages, Plaintiffs relied on the testimony and Opinion of their expert and only witness, Gary Cohen ("Cohen"), a royalty auditor.

When the Court enters a default judgment, it must "accept as true all of the factual allegations of the complaint," Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981), but "the amount of damages are not deemed true." Credit Lyonnais, 183 F.3d at 152; see Cotton v. Slone, 4 F.3d 176, 181 (2d Cir. 1993) ("[F]actual allegations are taken as true in light of the general default judgment."); Greyhound, 973 F.2d at 158 ("While a party's default is deemed to constitute a concession of all well pleaded allegations of liability, it is not considered an admission of damages.") (citations omitted). The Court must "conduct an inquiry in order to ascertain the amount of damages with reasonable certainty." Credit Lyonnais, 183 F.3d 151 at 152. This inquiry "involves two tasks: determining the proper rule for calculating damages on such a claim, and assessing plaintiff's evidence supporting the damages to be determined under this rule." Id. In calculating damages, the Court "need not agree that the alleged facts constitute a valid cause of action." Au Bon Pain, 653 F.2d at 65. Accordingly, the Court will consider to what extent Plaintiffs have demonstrated "with reasonable certainty" that they are legally entitled to damages. Credit Lyonnais, 183 F.3d 151 at 152. The Court has wide discretion in this regard. See Sony Corp. v. Elm State Elecs., Inc., 800 F.2d 317, 321 (2d Cir. 1986). For the reasons set forth below, the Court finds that Plaintiffs have not met their burden of proving damages "with reasonable certainty."Credit Lyonnais, 183 F.3d 151 at 152.

C. EXPERT TESTIMONY

Rule 702 of the Federal Rules of Evidence ("Rule 702") allows a "witness qualified as an expert by knowledge, skill, experience, training or education" to testify if his "specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue." Fed.R.Evid. 702. Courts within the Second Circuit "have liberally construed expert qualification requirements" when determining whether a witness can be considered an expert. TC Sys. Inc. v. Town of Colonie, New York, 213 F. Supp. 2d 171, 174 (N.D.N.Y. 2002); see also McCullock v. H.B. Fuller Co., 61 F.3d 1038, 1042 (2d Cir. 1995) ("The decision to admit expert testimony is left to the broad discretion of the trial judge and will be overturned only when manifestly erroneous."); United States v. Brown, 776 F.2d 397, 400 (2d Cir. 1985) (qualification requirements of Rule 702 "must be read in light of the liberalizing purpose of the rule"); Canino v. HRP, Inc., 105 F. Supp. 2d 21, 27 (N.D.N.Y. 2000) (stating that "liberality and flexibility in evaluating qualifications should be the rule").

The Second Circuit has instructed that a trial court, in determining whether a witness is qualified to render an expert opinion, "must first ascertain whether the proffered expert has the educational background or training in a relevant field." TC Sys., 213 F. Supp. 2d at 174. Then the court "should further compare the expert's area of expertise with the particular opinion the expert seeks to offer [and permit t]he expert . . . to testify only if the expert's particular expertise . . . enables the expert to give an opinion that is capable of assisting the trier of fact." Zwillinger v. Garfield Slope Housing Corp., No. 94 Civ. 4009, 1998 WL 623589, at *7 (E.D.N.Y. Aug. 17, 1998) (citations and quotation marks omitted) (alterations in original). Here, Judge Owen did not designate Cohen as an expert. (See Trial Tr. 36:24-37:3.) ("THE COURT: Counsel, I don't declare anybody to be an expert or not, but if your questions are within the area for which his testimony has laid a basis for expertise and there is an objection to, I will overrule it.")

Nonetheless, the Court will analyze Cohen's Opinion and testimony under the factors set forth in Daubert, 509 U.S. at 589, to determine whether they have "the required indicia of scientific reliability." See Nimely, 414 F.3d at 397 (citing Daubert 509 U.S. at 593-94). To assist courts with the reliability analysis, "Daubert enumerated a list of factors that, while not constituting a `definitive checklist or test,' a district court might consider," including "whether a theory or technique has been and could be tested, whether it had been subjected to peer review, what its error rate was, and whether scientific standards existed to govern the theory or technique's application or operation." Nimely, 414 F.3d at 397 (quoting Daubert 509 U.S. at 593-94). "[W]hen an expert opinion is based on data, a methodology, or studies that are simply inadequate to support the conclusions reached, Daubert and Rule 702 mandate the exclusion of that unreliable opinion testimony." Amorgianos v. National R.R. Passenger Corp., 303 F.3d 256, 266 (2d Cir. 2002) (citation omitted). Under Daubert and Rule 702, expert testimony must be both relevant and reliable.See Daubert, 509 U.S. at 589; see also Fed.R.Evid. 702. Here, Cohen's Opinion and testimony is relevant to the damages inquest because he was retained for the purpose of determining Plaintiffs' damages. However, for the following reasons, the Court finds that Cohen's testimony and Opinion do not meet theDaubert standard of reliability.

1. Cohen's Opinion and Testimony

Cohen was retained two months prior to the Trial for the sole purpose of verifying the Cinque Declaration, which was in evidence at the time Magistrate Judge Gorenstein concluded that Plaintiffs' damages evidence was insufficient. In that capacity, Cohen "summarized" and "checked" the summaries and calculation of profits created by Plaintiffs' counsel, Cinque, and created the Opinion based upon the Cinque Declaration. (Trial Tr. 49:7-51:13.) Cohen did not conduct an independent royalty audit, and his review of Sanctuary's voluminous production was limited to the documents that Cinque disclosed to Cohen. (See id. 69:2-17; 71:14-18.) For example, Cinque withheld exhibits from Cohen Defendants' expert's declaration, the Declaration of Edward Cook, dated August 23, 2005 ("Cook Declaration"), which included certain royalty statements that would have been relevant to Cohen's calculations. (See id. 69:2-17; 72:4-24.)

Despite his limited review, Cohen concluded that there were four categories of sales made by Sanctuary licensees from which Sanctuary purportedly earned income through exploitation of Plaintiffs' recordings: (1) advances received; (2) royalties earned; (3) synchronization and sample licenses; and (4) direct sales. The first two categories cover advances and royalties Sanctuary received from licensing Plaintiffs' recordings to third parties. The third category, synchronization, refers to income received through a specific kind of license in which music is used in conjunction with visual materials, such as in a movie or a television commercial. The last category, direct sales, covers sales by Sanctuary to record stores, which in turn sell to consumers. Cohen concluded that Sanctuary's exploitation totaled £17,368,510, or, converted into dollars, $34,110,017. (See Opinion 2; see generally Trial Tr. 52:14-68:24.)

Cohen's methodology can be summarized as follows. To define the universe of Plaintiffs' exploited recordings, Cohen relied upon lists created by Plaintiffs ("Plaintiffs' Lists") of recordings that Defendants exploited. (See Trial Tr. 173:3-10) ("Q: There are a variety of lists annexed to your report which you referred to as plaintiffs' recordings in your report; correct? A: Yes. Q: Now, you did not create those lists, did you? A: Those were created by the plaintiff. Q: Do you know who in particular created those lists? A: I was told that Joey Robinson created those lists."). Using Plaintiff's Lists, Cohen calculated the amount of advances and sales income Defendants purportedly received from licensing Plaintiffs' recordings — the first two of the four categories of profits — by taking the advances and sales estimates contained in Sanctuary's licensing agreements with third parties. Cohen assumed that these advances and sales estimates were accurate. Next, to calculate Sanctuary's synchronization profits, Cohen assumed that Sanctuary's proceeds equaled the synchronization and sample license proceeds received by Warner Music Group ("WMG"), the licensee of Plaintiffs' recordings in North America. Cohen's assumption was based on the underlying premise that Sanctuary had split the synchronization rights with WMG equally, meaning that synchronization license income for North America constituted 50 percent of worldwide synchronization license income. Thus, if WMG had 50 percent of the worldwide market, Sanctuary had the other 50 percent.

Finally, to calculate Sanctuary's direct sales, which constitute the bulk of the approximately $34 million damages figure Cohen reached, Cohen made the "reasonable assumption that Sanctuary directly sold the same number of units per record as its third party licensees sold." (Opinion 4.) To determine the number of units Sanctuary's third party licensees sold, Cohen relied on sales estimates contained in agreements for recordings licensed by Sanctuary to third party record manufacturers. Cohen identified 124 exploited albums based on documents "supplied by Sanctuary" and, from these 124 albums "determined that the average number of units [sold] embodying Plaintiffs' Recordings is 46,708." (Id.;see, e.g., id. at 3-4. ("Based on documents supplied by Sanctuary, I identified one hundred and twenty-four different products embodying one or more performances by Plaintiffs as producers or recording artists.").) Cohen reached the average of 46,708 by adding up all of sales estimates contained in the third-party licenses (3,596,483), and dividing that number by the total number of licenses (77). Cohen then multiplied the average number of units by the average price of an album for the year in which it was released, and, after discounting for pro-ration — such as where Plaintiffs' recordings may have been combined with other recordings — concluded that Sanctuary received £15,947, 722 in direct sales. The individual calculations are contained on two pages of a schedule attached to Cohen's Opinion. (See Schedule of Potential Gross Revenues-Direct Sales, attached as Schedule 3-1 to the Opinion.)

In addition, Plaintiffs' calculation of damages assumes that the Default Judgment entitles them to receive the total amount of Sanctuary's revenues from exploiting Plaintiffs' recordings, and, therefore, Cohen's calculations are based on Sanctuary's total revenues. (See Reply Declaration of Cinque in Support of Plaintiffs' Damages Application, dated Sept. 6, 2005, 28.) However, the calculation fails to consider Sanctuary's expenses and costs associated with the exploitation of Plaintiffs' recordings that should have been deducted from Sanctuary's total revenue to determine the amount of any damages. The record contains information regarding Sanctuary's expenses that Plaintiffs could have used to calculate the amount of Sanctuary's costs, including expenditures based on manufacturing, packaging, and shipping of recordings to third party distributors; various agreements containing settlement and new recording agreements between Sanctuary and artists included in Plaintiffs' lists; and royalty payments. (See Cook Declaration ¶¶ 51-64.)

2. Cohen's Reliability

For the reasons that follow the Court finds that Cohen's Opinion and testimony are insufficiently reliable to support a reasonable damages calculation. Cohen did not conduct an independent audit and reviewed only a small portion of Defendants' production. Crucially, Cohen's methodology is founded on hearsay supplied by Plaintiffs' counsel — hardly a source of first-hand, independent expert knowledge — incomplete comparisons, and dubious assumptions.

Neither Cohen nor Plaintiffs submitted any evidence identifying Plaintiffs' ownership interest in the exploited recordings. In addition, as noted above, Cohen testified that he made little or no determination as to the universe of exploited recordings. Cohen asserts that to determine which recordings Defendants exploited, he compared Plaintiffs' Lists against the part of Sanctuary's production that he reviewed. However, neither Cohen nor Plaintiffs made any effort to connect Plaintiffs' Lists to the Agreements even though Magistrate Judge Gorenstein concluded that "while [P]aintiffs provide . . . a listing of albums that have been exploited by Sanctuary, nothing connects these albums to the rescinded Agreements." (Report 15.) During the Trial, Plaintiffs introduced most of the Agreements into evidence. However, Plaintiffs did not offer any evidence identifying their ownership interests or connecting the Agreements to Plaintiffs' Lists, the documents on which all damages are premised. Without any connection between Plaintiffs' Lists and the Agreements, Cohen's entire analysis is either indefensibly premised on hearsay not "of a type reasonably relied upon by experts in the particular field," Fed.R.Evid. 703, or premised on an incomplete — or possibly irrelevant — comparison to what Sanctuary produced. As Magistrate Judge Gorenstein explained, and this Court concurs, Plaintiffs cannot recover any damages without specifically and reliably connecting the Agreements to their lists of exploited albums. Plaintiffs never made this connection. Thus, Plaintiffs Lists are not reliable.

Nevertheless, even if Plaintiffs' Lists were reliable and Plaintiffs' have full ownership interest in the exploited recordings, there is no basis upon which this Court can reasonably conclude that Cohen's methodology is reliable. Cohen's estimate is built upon one flawed assumption after another, and despite Plaintiffs' complaints of discovery abuse, the record reflects that Defendants produced sufficient documentation to permit Plaintiffs to test the reliability of Cohen's assumptions. However, Cohen and Cinque never tested their calculations as commended byDaubert, instead relying exclusively on their many faulty assumptions. See Amorgianos, 303 F.3d at 267 ("[T]he Daubert `requirement that the expert testify to scientific knowledge — conclusions supported by good grounds for each step in the analysis — means that any step that renders the analysis unreliable under the Daubert factors renders the expert's testimony inadmissible.'") (quoting In re Paoli R.R. Yard PCB Litig., 35 F.3d 717, 745 (3d Cir. 1994); citing Heller v. Shaw Indus. Inc., 167 F.3d 146, 155 (3d Cir. 1999) ("[T]he reliability analysis applies to all aspects of an expert's testimony: the methodology, the facts underlying the expert's opinion, the link between the facts and the conclusion, et alia.")).

For example, Cohen and Cinque never verified the advances and sales projections contained in third-party license agreements with third parties from whom they could have sought discovery. More importantly, Cohen and Cinque assumed that Sanctuary had the same number of direct sales as projected in third-party license agreements without any attempt to verify those sales estimates, even though they had royalty statements reflecting actual, not projected, sales. There is thus no sufficient, reliable basis for the Court to evaluate these assumptions other than to recognize that they are many and should have been verified.

Moreover, Cohen testified that he was unaware of any other expert in the field who had used this methodology before, and that his estimate was not made according to Generally Accepted Accounting Principles. Cohen and Cinque repeatedly conceded at the Trial that their damage estimates were not based on verified calculations or facts. (See, e.g., Opinion at 5; Trial Tr. 530 (stating, in summation: "And what we have to support Plaintiffs' position is [Cohen's Opinion] . . . Cohen says that I didn't have the backup documents that ordinarily I would have had, and he said that based upon that, I had to do the best I could. And what did he do? He made certain estimates").) Plaintiffs' explanation that they did not have sufficient documentation to make accurate accounting does not by some unknown alchemy convert unreliable evidence into reliable evidence. See Seneca Ins. Co. v. Wilcock, No. 01 Civ. 7620, 2007 WL 415141, at *10-11 (S.D.N.Y. Feb. 5, 2007) (rejecting expert testimony because "it rests on a plainly inadequate methodology — that is, an accounting without backup — and makes concededly false assumptions as to facts that are central to the accuracy or inaccuracy of the calculations") (citations omitted).

Finally, Cohen admitted that his calculations contained material errors such as double-counting. (See, e.g., Trial Tr. 88:3-91:6) (Helene M. Freeman, attorney for Defendants,: "There is certainly a material number of errors that you failed to catch. Cohen: Right.") As previously noted, Cohen's analysis divided Sanctuary's profits into four categories. However, in making those separate calculations, Cohen relied on some of the same sales estimates, thus posing the danger of counting the same sales estimates twice, once in one category and again in another. Cohen and Cinque testified that there were numerous instances of double-counting. (See, e.g., Trial Tr. 102:2-23; 104:9-105:22; 110:3-20; 113:23-114:14; see also id. at 133:10-22 (Cinque stating that "we did the best we could . . . maybe $50,000 or something . . . might be duplicative. But. other than that, the report is solid");see id. 147:15-24 ("THE COURT: Counsel, look, I'm going to blow the whistle on this. . . . You have established that there are a number of places here which [Cohen] has said because he's having to make estimates he made a mistake here or a mistake there or a duplication or that kind of thing, that's all been established now.").)

Plaintiffs counter that the unreliability of their damage calculation should be overlooked because Sanctuary's production was insufficient. This argument was rejected by Magistrate Judge Gorenstein and it is rejected by the Court. The record reflects that Sanctuary's production was voluminous and that their document retention policy was reasonable. Plaintiffs complain that Sanctuary did not produce records of total revenue by album, even though the testimony established that Sanctuary has had no reason to maintain such records. By contrast, Sanctuary did maintain records of and produced royalty statements owed under various contracts. However, Plaintiffs chose not to rely on those royalty statements; instead, they premised their damages estimate on assumptions and the sales projections in the third-party licensing agreements. Plaintiffs' bore the burden of proving their damages with "reasonable certainty," Credit Lyonnais, 183 F.3d at 152, but they failed to do so. For the foregoing reasons, Plaintiffs have failed to present any reliable evidence upon which the Court can calculate damages. Accordingly, the Court finds that Plaintiffs should not be awarded any damages pursuant to the Default Judgment.

III. ORDER

For the reasons stated above, it is hereby

ORDERED that Clerk of Court is directed to enter judgment dismissing the complaint of plaintiffs Sylvia Robinson, Sylvia, Inc., and Joseph Robinson, Jr., individually and as a member of "The Sugar Hill Gang;" Henry Jackson and Michael Wright, professionally known as "The Sugar Hill Gang;" and George Kerr, Wesaline Music, Jonathan Williams, Clifton Chase, and Edward Fletcher in this action.

The Clerk of Court is directed to withdraw any pending motions and close this case.

SO ORDERED.
Report and Recommendation of Magistrate Judge Gabriel W. Gorenstein dated March 30, 2006
Attachment to the Court's Decision and Order dated March 24, 2008

REPORT AND RECOMMENDATION

I. BACKGROUND

On December 29, 2003, plaintiffs, who are recording artists and producers, filed a complaint against Sanctuary Music seeking rescission of certain agreements or, in the alternative, damages for breach of contract. See Complaint, filed Dec. 29, 2003 (Docket #1) ("Compl."), at 9-10. Plaintiffs' initial complaint named as a defendant "Sanctuary Music." See Compl. at 1. After affidavits of service were filed, see Affidavit of Service, filed Jan. 15, 2004 (Docket #3); Affidavit of Service, filed Mar. 15, 2004 (Docket #4), Sanctuary Music failed to answer. As a result, on May 28, 2004, the district court (per Owen, J.) entered a default judgment against Sanctuary Music. See Default Judgment, filed May 28, 2004 (Docket #5), at 3. The Default Judgment listed various agreements and decreed that the "plaintiffs' grant of rights in sound recordings owned by or embodying the performances of plaintiffs throughout the world," with certain exceptions, were "rescinded and declared void as of May 31, 1995." Id. at 2. It ordered Sanctuary Music to "pay plaintiffs all monies received by defendant in connection with defendant's exploitation of plaintiffs' recordings since May 31, 1995." Id. at 3. It also contained a provision referring the matter to the undersigned "to hear and determine the amount of money received by defendant from the exploitation of plaintiffs' recordings since May 31, 1995, plus interest." Id. The undersigned was unaware of the Default Judgment, however, since neither party transmitted it to the undersigned and an Order of Reference had not yet issued.

After the Default Judgment was docketed, Judge Owen issued an order requiring plaintiffs to show cause why the Default Judgment should not be vacated. Order to Show Cause to Vacate Default Judgment, filed June 30, 2004 (Docket #6). In response, plaintiffs sought an order pursuant to Fed.R.Civ.P. 60 to substitute "Sanctuary Records Group, Ltd.," and "Sanctuary Copyrights, Ltd.," for "Sanctuary Music" as the named defendants. Notice of Cross-Motion to Substitute Sanctuary Records Group, Ltd. and Sanctuary Copyrights Ltd. for Sanctuary Music, filed July 9, 2004 (Docket #8). At oral argument on July 16, 2004, Judge Owen denied defendants' request to vacate the Default Judgment. See Transcript of Proceedings Held on July 16, 2004, filed Aug. 17, 2004 (Docket #11), at 36. Thereafter, Sanctuary Music opposed plaintiffs' motion to substitute the new defendants. Letter from Helene M. Freeman to Judge Owens, dated July 21, 2004 (Docket #14). Plaintiffs' motion was granted, and "Sanctuary Records Group, Ltd.," and "Sanctuary Copyrights, Ltd.," were substituted as defendants. See Order Denying Motion to Vacate Default Judgment and Granting Cross-Motion to Substitute Defendants, filed July 30, 2004 (Docket #10). Judge Owen also denied Sanctuary Music's request for an order vacating the Default Judgment. See id. at 2. Defendants will hereinafter be collectively referred to as "Sanctuary."

In July 2004, plaintiffs served interrogatories and document requests on counsel for the defendants. See Plaintiffs' First Set of Interrogatories Directed to Defendants (reproduced as Ex. D to Notice of Motion to Compel Discovery, filed Oct. 22, 2004 (Docket #17) ("Pl. Discovery Mot.")); Plaintiffs' First Request for Production of Documents (reproduced as Ex. E. to Pl. Discovery Mot.). Sanctuary objected to providing the requested discovery on the ground that a conference in the case had not been held pursuant to Fed.R.Civ.P. 26(f) and plaintiffs therefore were "not permitted to serve interrogatories and document requests absent a court order or stipulation." See Letter from Helene M. Freeman to James P. Cinque, dated Sept. 10, 2004 (reproduced as Ex. 1 to Declaration in Opposition to Motion by Plaintiff to Compel Discovery, filed Nov. 3, 2004 (Docket #19)), at 1.

On September 30, 2004, Judge Owen signed an Order of Reference (though this document has not been entered on the docket sheet). As a result of a letter to the Court, the undersigned held a discovery conference on October 12, 2004. At that time, the defendant took the position that it was not obligated to respond to any discovery requests because the default judgment rendered plaintiffs ineligible to take discovery. See Transcript of Proceedings Held on October 12, 2004, filed Dec. 29, 2004 (Docket #28), at 3. The Court sought written briefing on this topic. Id. at 6, 8-9. Accordingly, on October 22, 2004, plaintiffs filed a motion to compel discovery from the defendant. See Pl. Discovery Mot. Following briefing, oral argument was held on the motion on November 29, 2004. See Transcript of Proceedings Held on November 29, 2004, filed Dec. 29, 2004 (Docket #29) ("Nov. 29 Oral Argument"). At oral argument, Sanctuary changed its position and agreed to participate in discovery and engage in discussions with plaintiffs to determine the scope of discovery. See id. at 5-6. A discovery schedule was set at oral argument that required defendants to serve a document request and interrogatories by December 6, 2004, and required plaintiff to respond in 30 days.Id. at 7-8.

By Order dated December 2, 2004, this Court directed plaintiffs to submit proposed findings of fact and conclusions of law on the issue of damages by January 31, 2005, along with supporting affidavits and documents. The Order provided that:

Plaintiffs Proposed Findings of Fact should specifically tie the proposed damages figure(s) to the legal claim(s) on which liability has been established; should demonstrate how plaintiff has arrived at the proposed damages figure(s); and should be supported by one or more affidavits, which may attach any documentary evidence establishing the proposed damages.
See Order, filed Dec. 2, 2004 (Docket #24) ("Dec. 2 Order"), at 1. In addition it stated: "Each Proposed Finding of Fact shall be followed by a citation to the paragraphs of the affidavit(s) and/or page of documentary evidence that supports each such Proposed Finding." Id. at 1-2.

Sanctuary was instructed to respond with supporting affidavits and documents. See id. at 2. Following issuance of this order, there were various discovery disputes between the parties, during which the undersigned twice informed the plaintiffs that they had to comply with this Court's Individual Practices by raising the disputes with defendants' counsel before making applications to the Court. See Memorandum Endorsement, filed Dec. 7, 2004 (Docket #25), at 2; Memorandum Endorsement, filed Dec. 10, 2004 (Docket #27), at 1. At no time subsequent to the December 10, 2004 Memorandum Endorsement did plaintiffs make any application to the Court with respect to discovery.

On August 10, 2005, Sanctuary made a letter request that it be permitted to obtain copies of and/or inspect any documents obtained by plaintiffs as a result of a subpoena issued in this action — a request the Court granted. See Memorandum Endorsement, dated Aug. 11, 2005 (Docket #51).

Based on the "voluminous materials" that had been provided to plaintiffs as part of the discovery process, the plaintiffs requested, and the Court granted, a 90-day adjournment of the briefing schedule. See Memorandum Endorsement, filed Feb. 22, 2005 (Docket #33), at 1. Plaintiffs later requested another extension of the schedule, which was granted. See Memorandum Endorsement, filed Apr. 19, 2005 (Docket #34).

On June 14, 2005, plaintiffs submitted their papers in support of their request for damages. See Declaration of James P. Cinque in Support of Plaintiffs' Damages Application, filed June 14, 2005 (Docket #35) ("Cinque Decl."); see also Unattached Exhibits to Cinque Decl. (Docket ##36-48). The next day, plaintiffs filed their proposed findings of fact and conclusions of law. See Plaintiffs' Proposed Findings of Fact and Conclusions of Law, dated June 15, 2005 (Docket #49) ("Pl. Proposed Findings").

On August 23, 2005, Sanctuary filed its response to plaintiffs' submissions. See Declaration of Helene M. Freeman, filed Aug. 23, 2005 (Docket #53) ("Freeman Decl."); Declaration of Sarah M. Robertson, filed Aug. 23, 2005 (Docket #54); Defendants' Response to Plaintiffs' Damages Submission, filed Aug. 23, 2005 (Docket #55) ("Def. Response Mem."). Pursuant to a confidentiality order,see Stipulated Protective Order, filed Jan. 13, 2005 (Docket #31), Sanctuary filed several declarations and exhibits under seal. See Declaration of Joe Cokell, filed Aug. 23, 2005 (Docket #52) ("Cokell Decl."); Declaration of Edward Cook, filed Aug. 23, 2005 (Docket #52) ("Cook Decl."); Unattached Exhibits 2, 3, 4, and 13 to the Cook Decl. Plaintiff filed a reply on September 6, 2005. See Reply Declaration of James P. Cinque in Support of Plaintiffs' Damages Application, filed Sept. 6, 2005 (Docket #56) ("Cinque Reply").

Following review of the parties' submissions, the Court directed the parties to provide briefing on certain issues. See Order, filed Nov. 10, 2005 (Docket #58) ("Nov. 10 Order"), at 1-3. Both parties submitted a supplemental memorandum of law and then filed a reply. See Defendants' Supplemental Response to Plaintiffs' Damages Submission, filed Dec. 13, 2005 (Docket #61) ("Def. Supp. Mem."); Plaintiffs' Supplemental Memorandum of Points and Authorities, filed Dec. 13, 2005 (Docket #62) ("Pl. Supp. Mem."); Plaintiffs' Reply Supplemental Memorandum of Points and Authorities, filed Jan. 13, 2006 (Docket #65) ("Pl. Supp. Reply Mem."); Defendants' Reply to Plaintiffs' Supplemental Memorandum of Law, filed Jan. 13, 2006 (Docket #66) ("Def. Supp. Reply Mem."). Sanctuary also filed supplemental affidavits under seal. See Supplemental Declaration of Helene M. Freeman, Vols. 1 and 2, filed Dec. 13, 2005 (Docket ##59-60) ("Freeman Supp. Decl.").

II. FINDINGS OF FACT AND CONCLUSIONS OF LAW

None of the parties has requested a hearing on the issue of damages. The Second Circuit has held that a court may rely solely on documentary evidence in conducting an inquest, "as long as [the Court has] ensured that there was a basis for the damages specified in a default judgment." Fustok v. ContiCommodity Servs., Inc., 873 F.2d 38, 40 (2d Cir. 1989); accord Action S.A. v. Marc Rich Co., 951 F.2d 504, 508 (2d Cir. 1991). Because the disposition recommended herein is based on undisputed facts, no hearing is required.

In light of Sanctuary's default, plaintiffs' properly-pleaded allegations, except those relating to damages, are accepted as true. See, e.g., Cotton v. Slone, 4 F.3d 176, 181 (2d Cir. 1993) ("[F]actual allegations are taken as true in light of the general default judgment."); Greyhound Exhibitgroup. Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992) ("While a party's default is deemed to constitute a concession of all well pleaded allegations of liability, it is not considered an admission of damages.") (citations omitted); Time Warner Cable of New York City v. Barnes, 13 F. Supp. 2d 543, 547 (S.D.N.Y. 1998) ("[U]pon entry of a default . . . a defendant admits every `well-pleaded allegation' of the Complaint except those relating to damages.") (citations omitted). However, "a district court has discretion under Rule 55(b)(2) once a default is determined to require proof of necessary facts and need not agree that the alleged facts constitute a valid cause of action." Au Bon Pain Corp. v. Artect. Inc., 653 F.2d 61, 65 (2d Cir. 1981) (citing 10 C. Wright A. Miller, Federal Practice Procedure: Civil's 2688, at 280-81, 282 (1973)); see also In re Crazy Eddie Securities Litigation, 948 F. Supp. 1154, 1161 (E.D.N.Y. 1996) ("court must first examine the validity of plaintiffs' claims to determine the extent of damages they are legally entitled to recover . . .").

A. Liability

The following facts are taken from plaintiffs' Complaint and are accepted as true for purposes of this inquest.

From the late 1970's to the mid-1990's, plaintiffs, who are artists and producers, entered into various recording contracts with record companies. These agreements, which are not attached to the Complaint, are listed in the chart below: Date Recording Owner: Grantor Grantee Citation

1) In or about • Sylvia Robinson • All Platinum Record Compl. ¶ 15 1970 Company ("All Platinum") 2) In or about • Sylvia Robinson • Sugar Hill Records, Compl. ¶ 15 1980 • Sylvia, Inc. Ltd. ("Sugar Hill") 3) In or about • Joseph Robinson, Jr. • Sugar Hill Compl. ¶ 17 1980 4) In or about • Clifton Chase • Sugar Hill Compl. ¶ 24 1980 5) May 15, • Sylvia Robinson • Platinum Record Compl. ¶ 13 1970 Company, Inc. ("Platinum") 6) January 3, • Sylvia Robinson • Sugar Hill Compl. ¶ 14 1982 7) July 25, • Joseph Robinson, Jr., • Sugar Hill Compl. ¶ 16 1981 performing as "West Street Mob Ferrari" 8) August 25, • Henry Jackson • Sylvia, Inc. Compl. ¶ 18 1979 • Michael Wright • Guy O'Brien (not a named plaintiff) Performing collectively as "The Sugar Hill Gang" 9) In or about • "The Sugar Hill Gang" • Sugar Hill Compl. ¶ 18 1980 10) In or about • Guy O'Brien • Joseph Robinson, Jr. Compl. ¶ 19 1989 11) May 6, • George Kerr • Platinum Compl. ¶ 20 1971 12) April 7, • Jonathan Williams • All Platinum Compl. ¶ 23 1976 13) October • Edward Fletcher • Sugar Hill Compl. ¶ 25 11, 1981 performing as "Duke Bootie" in the group "Grandmaster Flash" 14) In or about • Wesaline Music • Sugar Hill Compl. ¶ 21 1994-1995 15) In or about • Jonathan Williams • All Platinum Compl. ¶ 22 1975 performing as "The Rimshots" 16) May 31, • Sugar Hill in its own • Rhino Records, Inc. Compl. ¶ 26 1995 right ("Rhino") • Sugar Hill as successor • Castle Copyrights, in interest to Platinum Ltd. ("Castle") and All Platinum In the agreements numbered 1 through 4 above, the record companies agreed to pay what are termed "producer royalties" to plaintiffs for world sales of recordings produced by them. See Compl. ¶¶ 15, 17, 24. In the agreements numbered 5 through 13 (excluding number 10), the record companies agreed to pay "artist royalties" to plaintiffs for world sales of recordings embodying plaintiffs' performances. See id. ¶¶ 13-14, 16, 18, 20, 23, 25. In agreement 10, Joseph Robinson, Jr. obtained an assignment of rights from Guy O'Brien in contracts 8 and 9, and replaced O'Brien in "The Sugar Hill Gang." Id. ¶ 19. In agreement number 14, plaintiff Wesaline Music granted Sugar Hill a license to release a number of albums owned by Wesaline in consideration for royalty payments based on world sales of those recordings. Id. ¶ 21. In agreement number 15, Jonathan Williams granted All Platinum a license to exploit a number of sound recordings owned by Williams in consideration of royalty payments based on world sales of those recordings. Id. ¶ 22. The Complaint collectively referred to all of the above agreements, excluding agreements number 10 and 16, as "the Agreements." See id. ¶ 25.

The Complaint refers to agreement number 16 as the Asset Purchase Agreement ("APA"). Compl. ¶ 26. According to the Complaint (which does not attach the APA), Rhino and Castle agreed in the APA to assume the obligations of Sugar Hill, in its own right and as the successor in interest to Platinum and All Platinum, "to render accountings and payments to master owners, artists and producers who were entitled to royalties pursuant to agreements with Sugar Hill, Platinum and All Platinum, including but not limited to the Agreements." Id. In return, Rhino and Castle would receive Sugar Hill's assets — both those assets Sugar Hill owned in its own right and those it acquired as successor in interest to Platinum and All Platinum. See id. ¶¶ 26-27. The APA provides that Rhino would be the "sole buyer" of Sugar Hill's assets and that Castle would have "an option to purchase divisible assets" under the terms of the APA. Id. ¶ 27. After executing the APA, Rhino assigned to Castle the rights to exploit the master recordings under the APA throughout the world, with the exception of North America, South America, the Caribbean and Japan (the "Foreign Territory"). Id. ¶ 28. The complaint refers to these as the "Foreign Rights." Id. Thereafter, Castle assigned the Foreign Rights under the APA to Sanctuary. Id. ¶ 29.

It is unclear from the Complaint when Castle assigned its rights to Sanctuary, but Sanctuary asserts that it acquired Castle in 2000 and prior to this acquisition, Castle was its "associated company," see Cook Decl. ¶¶ 3, 5.

Since the execution of the APA on May 31, 1995, Sanctuary has exploited plaintiffs' recordings in the Foreign Territory. See Compl. ¶ 30. The APA requires Sanctuary to pay royalties to plaintiffs for this exploitation. See id. ¶ 31. However, "Sanctuary has knowingly and wilfully failed to remit any accountings or payments to plaintiffs since May 31, 1995, although required to do so by the terms of the Agreements." Id. ¶ 32. Because of this failure, plaintiffs sought in their Complaint an order rescinding Sanctuary's "Foreign Rights under the Agreements," and requiring Sanctuary "to account and pay plaintiffs all monies received in connection with [its] exploitation of the Foreign Rights." Compl. at 9. In the alternative, plaintiffs sought an order requiring Sanctuary "to account and pay plaintiffs all royalties due" to plaintiffs under the terms of the Agreements. Id. ¶ 39 pp. 9-10.

The Default Judgment was specific in granting a default only under the Complaint's first claim inasmuch as it "rescinded and declared void" plaintiffs' "grant of rights in sound recordings owned by or embodying the performances of plaintiffs throughout the [Foreign Territory], in" agreements numbered 1 through 15 (excluding number 10), i.e., the Agreements. Id. at 2-3. The Default Judgment did not rescind the rights granted under the APA. See id. Indeed, the Complaint does not seek rescission of the APA, but rather limits plaintiffs' claim to a request for "an Order rescinding the Foreign Rights under the Agreements," Compl. at 9, and excludes the APA from its definition of "the Agreements," id. ¶ 25.

In addition to rescinding the Agreements, the Default Judgment awards plaintiffs "all monies received by defendant in connection with defendant's exploitation of plaintiffs' recordings since May 31, 1995." Default Judgment at 3. It is important for considering the calculation of damages to understand which of plaintiffs' two causes of action entitles them to such an award. Plaintiffs explicitly state that they do not seek damages under their second cause of action, Compl. at 9-10, for Sanctuary's alleged breach of contract. See Pl. Supp. Mem. at 13-14. Nor is there any claim in the Complaint seeking enforcement of the Agreements or the APA. Instead, plaintiffs seek to recover damages only under their first cause of action for rescission. Pl. Supp. Mem. at 3, 13-14.

Plaintiffs assert that the rescission of the Agreements entitles them to the relief awarded in the Default Judgement. Pl. Supp. Mem. at 3-7. They argue the award here is necessary to "adjust equities" and that without an award, "defendants would be unjustly enriched from their unauthorizeed [sic] exploitation of plaintiffs' recordings." Id. at 6-7. While it is questionable whether the allegations of the Complaint are sufficient to support the relief of rescission, see, e.g., Sokolow, Dunaud, Mercadier Carreras LLP v. Lacher, 299 A.D.2d 64, 71 (1st Dep't 2002) ("The equitable remedy of rescission `is to be invoked only when there is lacking complete and adequate remedy at law and where the status quo may be substantially restored.'") (quotingRudman v. Cowles Communications. Inc., 30 N.Y.2d 1, 13 (1972)), this Court will assume arguendo that the Complaint supports this relief. Where rescission is available, case law provides that "[d]amages may be recovered as incident to an action in equity for a rescission." Equitable Life Assur. Soc. of U.S. v. Kushman, 276 N.Y. 178, 184 (1937). A court "may, in its judgment, so adjust the equities between the parties, that unjust enrichment is avoided." Holdeen v. Rinaldo, 28 A.D.2d 947, 949 (3d Dep't 1967). "The basic elements of an unjust enrichment claim in New York require proof that (1) defendant was enriched, (2) at plaintiff's expense, and (3) equity and good conscience militate against permitting defendant to retain what plaintiff is seeking to recover." See Briarpatch Ltd., L.P. v. Phoenix Pictures, Inc., 373 F.3d 296, 306 (2d Cir. 2004) (citing Clark v. Daby, 300 A.D.2d 732, 732 (3d Dep't 2002)).

Plaintiffs cite exclusively to New York law in their briefs. Defendants also cite to New York law, though they note that two of the Agreements at issue contain New Jersey choice-of-law provisions. Def. Supp. Mem. at 9 n. 3. Given the parties' reliance on New York law, the Court also will apply New York law. See,e.g., Krumme v. WestPoint Stevens Inc., 238 F.3d 133, 138 (2d Cir. 2000) (citation omitted).

Accordingly, the Default Judgment may properly be viewed as an award pursuant to an unjust enrichment claim — but one that necessarily derives from the rescission of Sanctuary's Foreign Rights under the Agreements. The logical consequence of this analysis that, because plaintiffs' recovery is based on the rescission of rights conveyed in the Agreements, plaintiffs can only recover the money Sanctuary received from exploiting plaintiffs' recordings that were the subject matter of those Agreements.

B. Damages

To calculate "the amount of money received by Sanctuary from the exploitation of plaintiffs' recordings since May 31, 1995," Default Judgment at 3, it is necessary to know precisely what constitutes "plaintiffs' recordings." Although we take the factual allegations in the Complaint to be true, the Complaint is of little help in determining what constitutes "plaintiffs' recordings," since it does not identify the various albums and songs making up "plaintiffs' recordings." The Complaint merely states that defendants exploited "sound recordings owned by or embodying the performances of plaintiffs." Compl. ¶ 30.

Although that description does not explicitly include recordings produced by plaintiffs, this Court assumes plaintiffs are alleging that recordings produced by plaintiffs are "owned by" plaintiffs.

In their effort to address this critical question, plaintiffs have done two things. First, they have submitted copies of what the parties refer to as "Label Copies," see Cinque Decl. Ex. E, which list song names and other information about albums alleged to include "plaintiffs' recordings." The Label Copies apparently represent the actual recordings that plaintiffs assert have been improperly exploited and in which they have some interest. Second, they furnish a list of the artists performing "plaintiffs' recordings." Pl. Proposed Findings ¶¶ 1-2.

The problem with these submissions, however, is that the evidence submitted by plaintiffs does not connect the recordings reflected by the Label Copies to the rescinded Agreements. This is a critical omission because this Court is being asked to award damages in the form of unjust enrichment based solely on plaintiffs' having obtained rescission of the Agreements. But to determine the amount by which Sanctuary has been unjustly enriched at plaintiffs' expense through the existence of those Agreements, this Court must determine how much money Sanctuary has earned through the exploitation of plaintiffs' recordingsthat are the subject of the Agreements — not how much money Sanctuary has earned through the exploitation of plaintiffs' recordings generally. The evidence before this Court does not permit this connection to be made. While plaintiffs have provided a list of artists and recordings that are derived from the information in the Label Copies, Pl. Proposed Findings ¶¶ 1, 2; Cinque Decl. ¶ 3 Ex. E, they have provided no evidenceconnecting the list of artists or, more importantly, the Label Copies to the rescinded Agreements themselves.

Plaintiffs did not submit copies of the Agreements to the Court as evidence. See Def. Supp. Mem. at 8; Freeman Supp. Decl. ¶ 5. Sanctuary expresses doubt as to whether some of the Agreements exist, Def. Supp. Mem. at 8; Freeman Supp. Decl. ¶ 3 — a contention that plaintiffs did not respond to, see Pl. Supp. Reply Mem. While Sanctuary has submitted copies of four of the Agreements, see Freeman Supp. Decl. ¶ 3 Exs. C, D, E; Cokell Decl. Ex. H, they do not fill the gap in plaintiffs' submission because the four agreements do not list any recordings. Rather, they state a number of albums that the artists were required to create over the course of each agreement. Id. Thus, even with the four Agreements submitted by Sanctuary, there is still no evidence tying the recordings in the Label Copies to the Agreements mentioned in the Complaint.

Had plaintiffs offered any proof that any identified recordings reflected in the "Label Copies" (or anywhere else) were connected to any of the Agreements, this Court might have been able to find that plaintiffs owned those recordings and that they thus represented "plaintiffs' recordings" for purposes of calculating the damages awarded in the Default Judgment. See Compl. ¶ 30 (alleging that the recordings relating to the Agreements were "owned by" or performed by plaintiffs). However, nothing in the evidence submitted by plaintiffs permits the Court to make a finding that any given recording was the subject matter of the Agreements. Again, while plaintiffs list the names of artists who recorded songs under the Agreements, the particular albums and songs are not named. See Cinque Decl. Ex. D. And, while plaintiffs provide, through the Label Copies, a listing of albums that have been exploited by Sanctuary, nothing connects these albums to the rescinded Agreements. Thus, it is impossible to determine the extent to which Sanctuary received a benefit or was "unjustly enriched" by the Agreements.

In sum, plaintiffs are entitled to recover only the money Sanctuary received from exploiting plaintiffs' recordings that were the subject matter of the Agreements, and the plaintiffs have failed to meet their burden of proving these damages. See Greyhound Exhibitgroup. Inc., 973 F.2d at 160 (plaintiff "bore the burden of proving . . . each item of damage it claimed" at the inquest). Notably, the Court specifically warned plaintiffs that they were required to "specifically tie" their claim for damages to the legal claims in the case, that they had to "demonstrate how plaintiff has arrived at the proposed damages figure(s)," and that the plaintiffs were required to submit affidavits for this purpose. December 2 Order at 1; see also Trans World Airlines. Inc. v. Hughes, 449 F.2d 51, 70 (2d Cir. 1971) (requiring plaintiff to "establish that [its] damages were attributable to" its cause of action for which it received a default judgment), rev'd on other grounds, 409 U.S. 363 (1973). In the absence of proof as to what recordings were the subject matter of the Agreements, there is no basis on which this Court can make findings of the amount by which Sanctuary was unjustly enriched through its exploitation of the recordings that were the subject matter of the Agreements.

Conclusion

Because plaintiffs have not met their burden of proving damages, they should not be awarded any amount of money pursuant to the existing default judgment.

PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION

Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure, the parties have ten (10) days from service of this Report and Recommendation to serve and file any objections. See also Fed.R.Civ.P. 6(a), (e). Such objections (and any responses to objections) shall be filed with the Clerk of the Court, with copies sent to the Hon. Richard Owen and the undersigned at 40 Centre Street, New York, New York 10007. Any request for an extension of time to file objections must be directed to Judge Owen. If a party fails to file timely objections, that party will not be permitted to raise any objections to this Report and Recommendation on appeal. See Thomas v. Am, 474 U.S. 140 (1985).

DECISION AND ORDER

By Decision and Order dated March 24, 2008 (the "Decision and Order"), the Court determined that plaintiffs Sylvia Robinson, Sylvia, Inc., and Joseph Robinson, Jr., individually and as a member of "The Sugar Hill Gang"; Henry Jackson and Michael Wright, professionally known as "The Sugar Hill Gang"; and George Kerr, Wesaline Music, Jonathan Williams, Clifton Chase, and Edward Fletcher (collectively, "Plaintiffs") should not be awarded any damages pursuant to the default judgment entered May 28, 2004 by Order of the Honorable Richard Owen (the "Default Judgment"). In addition, the Court directed the Clerk of Court to enter judgment dismissing the complaint of Plaintiffs in this action, withdraw any pending motions and to close this case.

On April 3, 2008, Plaintiffs filed a Notice of Motion for reargument or reconsideration of the portion of the Decision and Order which dismissed the complaint, or, in the alternative, Plaintiffs moved pursuant to Federal Rules of Civil Procedure 60(a) ("Rule 60(a)") for an order to amend or correct the Decision and Order deleting the portion that directs the Clerk of Court to enter judgment dismissing the complaint. For the reasons set forth below, Plaintiffs' motion is DENIED.

I. BACKGROUND

On December 22, 2003, Plaintiffs filed a complaint (the "Complaint") against defendants Sanctuary Records Group, Ltd. ("Sanctuary Records") and Sanctuary Copyrights, Ltd. ("Sanctuary Copyrights") (collectively, "Sanctuary") "seeking rescission of certain musical recording agreements (the "Agreements"), and incidental damages flowing from exploitation of Plaintiffs' musical recordings or, in the alternative, an order directing "Sanctuary to account and pay [P]laintiffs all royalties due to them pursuant to the terms of the Agreements." (Compl. ¶ 40.) Because Sanctuary Music failed to file an Answer, on May 28, 2004, Judge Owen entered the Default Judgment rescinding the Agreements as of May 31, 1995, ordering Sanctuary to pay Plaintiffs all monies received by Sanctuary in connection with Sanctuary's exploitation of Plaintiffs' recordings since May 31, 1995, and referring the matter to Magistrate Judge Gorenstein "to hear and determine the amount of money received by [Sanctuary] from the exploitation of Plaintiffs' recordings since May 31, 1995, plus interest." (Default Judgment 3.)

By Order Denying Motion to Vacate Default Judgment and Granting Cross-Motion to Substitute Defendants, dated July 30, 2004 (Docket No. 10), defendants Sanctuary Records and Sanctuary Copyrights were substituted for Sanctuary Music.

The Agreements include: an agreement dated May 15, 1970 between S. Robinson and Platinum Record Company, Inc,; an agreement dated January 3, 1982 between S. Robinson and Sugar Hill, Records Ltd. ("Sugar Hill Records"); an agreement dated in or about 1970 between S. Robinson and All Platinum Record Company ("All Platinum"); an agreement dated in or about 1980 between S. Robinson and Sylvia; an agreement dated July 25, 1981 between J. Robinson and Sugar Hill Records; an agreement dated in or about 1980 between J. Robinson and Sugar Hill Records; an agreement dated August 25, 1979 between Jackson, Wright, Guy O'Brien and Sylvia; an agreement dated in or about 1980 between Jackson, Wright, O'Brien and Sugar Hill Records; an agreement dated May 6, 1971 between Kerr and All Platinum; an agreement dated in or about 1994 or 1995 between Wesaline and Sugar Hill Records; an agreement dated in or about 1975 between Williams and All Platinum; an agreement dated April 7, 1976 between Williams and All Platinum; an agreement dated in or about 1980 between Chase and Sugar Hill Records; and an agreement dated October 11, 1981 between Fletcher and Sugar Hill Records.

Magistrate Judge Gorenstein presided over an extensive damages inquest and, on March 30, 2006, issued a Report and Recommendation (the "Report") concluding that Plaintiffs should not be awarded any damages because Plaintiffs had not met their burden of specifically tying any of the damages they alleged to the Agreements.

On April 10, 2006, Plaintiffs filed objections to the Report, arguing that the Court should make a de novo damages assessment. The Court agreed, and Judge Owen held a bench trial from May 29, 2007 through June 1, 2007 on the sole issue of damages. On March 24, 2008, the Court issued its Decision and Order finding that Plaintiffs should not be awarded any damages, and directed the Clerk of Court to enter judgment dismissing the Complaint, withdraw any pending motions and close the case.

II. DISCUSSION

A. STANDARD OF REVIEW

Rule 60(a) provides that a court "may correct a clerical mistake or a mistake arising from oversight or omission whenever one is found in a judgment, order, or other part of the record . . . on motion or on its own, with or without notice." Fed.R.Civ.P. 60(a). "A motion under Rule 60(a) is available only to correct a judgment for the purpose of reflecting accurately a decision that the court actually made." Hodge ex rel. Skiff v. Hodge, 269 F.3d 155, 158 (2d Cir. 2001) (citations and quotation marks omitted). "To be correctable under Rule 60(a), the [alleged error] must fail to reflect the actual intention of the court." Paddington Partners v. Bouchard, 34 F.3d 1132, 1140 (2d Cir. 1994) (citations omitted).

B. APPLICATION

Plaintiffs' allege that the Court, in dismissing the complaint against Sanctuary, overlooked the Default Judgment whereby Judge Owen rescinded the Agreements. The Plaintiffs are concerned that because the Decision and Order directed the Clerk of Court to dismiss the Complaint that the Default Judgment no longer has effect. The Court disagrees.

The Decision and Order was limited to the determination "of the amount of money received by Sanctuary from the exploitation of Plaintiffs' recordings since May 31, 1995, plus interest." (Default Judgment 3.). The Decision and Order did not affect the entry of the Default Judgment rescinding the Agreements and, therefore, the Default Judgment remains in full force and effect. The Court's dismissal of the Complaint was intended to apply to the extent that any other issues remained open after the entry of the Default Judgment. Therefore, there is no clerical mistake or oversight in the Decision and Order. Accordingly, Plaintiffs' motion for reconsideration or reargument is denied.

III. ORDER

For the foregoing reasons, it is hereby

ORDERED that the motion (Docket No. 82) for reargument or reconsideration of the portion of the Decision and Order dated March 24, 2008 (Docket No. 80) dismissing the complaint is DENIED.

SO ORDERED.


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Robinson v. Sanctuary Record Groups, Ltd.

United States District Court, S.D. New York
Mar 25, 2008
542 F. Supp. 2d 284 (S.D.N.Y. 2008)

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Case details for

Robinson v. Sanctuary Record Groups, Ltd.

Case Details

Full title:SYLVIA ROBINSON, SYLVIA INC., JOSEPH ROBINSON, JR., individually and as a…

Court:United States District Court, S.D. New York

Date published: Mar 25, 2008

Citations

542 F. Supp. 2d 284 (S.D.N.Y. 2008)

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