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Gervasi v. Warner/Chappell Music, Inc.

United States District Court, M.D. Tennessee, Nashville Division

January 31, 2017

DEBORAH BUSH GERVASI, individually and on behalf of the Estate of Richard A. Whiting, Plaintiff,
v.
WARNER/CHAPPELL MUSIC, Inc., a division of Warner Music Group Corp., Defendant.

          MEMORANDUM

          ALETAA.TRAUGE, United States District Kdge

         Pending before the court is a Motion for Leave to Amend the First Amended Complaint filed by the plaintiff (Docket No. 61), to which the defendant has filed a Response in opposition (Docket No. 64), and the plaintiff has filed a Reply (Docket No. 67). For the reasons discussed herein, the motion will be granted in part and denied in part.

         BACKGROUND AND PROCEDURAL HISTORY

         On June 20, 2012, the plaintiff, Deborah Bush Gervasi, initiated this breach of contract action against the defendant, Warner/Chappel Music, Inc. (“WCM”), bringing claims on behalf of herself and the estate of her deceased grandfather, Richard A. Whiting (the “Whiting Estate”). (Docket No. 1.) Mr. Whiting was a well-known composer during the early 1900s, whose catalogue of songs includes “On the Good Ship Lollipop, ” “Hooray for Hollywood, ” and a number of scores for films and Broadway plays. The claims in this action arise from allegations that WCM, or its predecessors-in-interest, [1] underpaid the Whiting Estate in royalty fees on songs composed by Mr. Whiting, pursuant to a publication agreement between the Whiting Estate and WCM.

         I. The Amended Complaint

         On June 22, 2012, Ms. Gervasi filed the Amended Complaint, which is the current operative pleading. (Docket No. 4.) According to the Amended Complaint, as of May 28, 2011, Ms. Gervasi is the heir to the Whiting Estate, which includes all of Mr. Whiting's intellectual property. The Amended Complaint alleges that, in 1936, Mr. Whiting entered into an agreement with WCM, pursuant to which Mr. Whiting was to render to WCM his exclusive services as a composer of musical compositions for a set period of time, and WCM was to pay him under a set royalty structure for the exploitation of those compositions (the “1936 Agreement”). In 1938, Mr. Whiting passed away and his estate passed to his wife, Eleanore Whiting. On August 27, 1943, Ms. Whiting entered into a publication agreement with WCM, pursuant to which Ms. Whiting transferred her interest in certain of Mr. Whiting's musical compositions to WCM in exchange for royalty payments in the amount of 50% of all of WCM's income on exploitations of those compositions in the United States (the “Renewal Agreement”).

         According to the Amended Complaint, in May of 2007, Ms. Gervasi discovered paperwork and documents related to the copyrights in Mr. Whiting's Estate that revealed that WCM had been paying the Whiting Estate a lower percentage of royalties than the 50% required on thirteen of the compositions covered by the Renewal Agreement. These thirteen compositions are listed in an exhibit to the Amended Complaint. The Amended Complaint does not specify when this alleged breach began, nor when the Whiting estate was first in possession of the documents Ms. Gervasi reviewed in 2007 that alerted her to the potential breach.

         The Amended Complaint alleges that, beginning in May of 2007, Ms. Gervasi sought answers from WCM about the royalties on the thirteen compositions identified in the Amended Complaint. Despite a number of communications, WCM did not offer any explanation until March of 2010, when, according to the Amended Complaint, WCM represented to Ms. Gervasi that the royalty payments on these compositions were not subject to the Renewal Agreement terms but to lower royalty rates provided in the 1936 Agreement. Because the thirteen compositions are expressly listed in the Renewal Agreement, Ms. Gervasi continued to demand additional explanation from WCM but received no further response. The factual dispute between the parties as to whether the Renewal Agreement governs the thirteen compositions identified in the Amended Complaint remains at the heart of this action. WCM claims that those thirteen compositions were listed in the Renewal Agreement in error, as they were already owned by WCM (rather than the Whiting Estate) pursuant to the 1936 Agreement and, therefore, rights to those compositions could not have been transferred to WCM from Ms. Whiting in 1943.

         The Amended Complaint brings causes of action for breach of contract and breach of the duty of good faith and fair dealing. The Amended Complaint seeks compensatory and punitive damages as well as an accounting and a declaratory judgment that WCM is obligated to pay the Whiting Estate royalties in the amount of 50% of income from exploitations of the thirteen listed compositions.

         II. The Prior Motion to Dismiss

         On December 3, 2012, WCM filed a Motion to Dismiss for failure to state a claim under Rule 12(b)(6), along with a Memorandum in support. (Docket Nos. 13, 14.) In this motion, WCM argued that Ms. Gervasi's claims were barred by the statute of limitations, or, alternatively, that they should not be allowed to proceed under the equitable doctrine of laches, because the Whiting Estate had accepted royalty payments of less than 50% on the thirteen compositions in question for decades before the action was filed. WCM likewise argued that the discovery rule should not apply to toll the limitations period because the alleged breach had been discoverable by the Whiting Estate for the same amount of time. On December 27, 2012, Ms. Gervasi filed a Response to the Motion to Dismiss, arguing that the statute of limitations did not bar her claims because, even though the Renewal Agreement had been in effect for decades, it was not yet clear when the breach began. (Docket No. 17.) Ms. Gervasi further argued that, regardless of when the breach began, pursuant to the discovery rule, the limitations period did not start running until 2010, when WCM admitted to Ms. Gervasi that it had paid royalties of less than 50% (and in the amount indicated by the 1936 Agreement) on the thirteen compositions. According to Ms. Gervasi, prior to 2010, the breach was not entirely clear to her, despite her diligent efforts to understand the royalty payments and to receive an explanation from WCM for the apparent discrepancies she noted in the documents she reviewed. Ms. Gervasi also argued that the laches defense was premature at the motion to dismiss phase, when the factual record had not yet been developed. On January 14, 2013, WCM filed a Reply. (Docket No. 19.)

         The parties agreed, for purposes of the Motion to Dismiss only, that Tennessee law applied, though WCM stated in its briefing that it reserved the right to later assert that California law actually governs the agreements between the parties. In her Response, Ms. Gervasi also conceded to the dismissal of her claims for breach of the implied covenant of good faith and fair dealing and for an accounting.

         On January 30, 2014, the court issued a Memorandum and Order denying WCM's Motion to Dismiss with respect to the remaining claims. (Docket No. 35.) The court first held that, under Tennessee law, the six-year statute of limitations on the breach of contract claim began running when WCM first allegedly breached the Renewal Agreement, or announced its intention to do so. The court specifically held that, under Tennessee law, the limitations period did not begin anew each time a new royalty payment was issued that allegedly breached the terms of the Renewal Agreement. Accordingly, the court held that Ms. Gervasi would have to show that either the first breach of the Renewal Agreement occurred no earlier than 2006 or that the discovery rule applies, in order for her breach of contract claim to survive, even with respect to damages arising from any alleged underpayments made within the six years prior to her filing of this action. The court then held that, while the issue of whether the discovery rule will ultimately apply could not be decided until the factual record was more fully developed, Ms. Gervasi had sufficiently pled facts that, when viewed in the light most favorable to her, would support a claim that the discovery rule tolls the statute of limitations in this instance.

         Specifically, the court found that, on the face of the allegations in the Amended Complaint, the claims were discoverable at least as early as 2007. The court rejected Ms. Gervasi's assertion that the limitations period did not begin running until 2010, when she knew all of the facts to support her legal theory of the case. Because 2007 was within the six years prior to Ms. Gervasi's filing of this action, the court held that the claims could proceed. The court noted, however, that, once the record was more fully developed, Ms. Gervasi would ultimately have to prove that the breach was not reasonably discoverable by the Whiting Estate at any time prior to 2006 in order to prevail.[2] The court did not reach the laches defense, holding that this analysis was premature when it had not yet been determined whether the claims were barred by the statute of limitations. The court stated, however, that, if Ms. Gervasi were able to prove that the discovery ...


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