Another Reason Why What a Word Means Matters in a Contract

Well here's a reason why one as a lawyer needs to be a creative psychic who can predict all the possible scenarios that can result from a deal:

New York's highest court has refused to reinstate the lawsuit by Duke Ellington's heirs against music publisher EMI.  

...The heirs have been seeking half the royalties from foreign sales of his music. Their 2010 suit alleges breach of the 1961 standard songwriter royalty contract. Ellington signed the deal with Mills Music, predecessor of EMI, now part of global Sony/ATV Music. The contract calls for an even split of net revenue. EMI deducts 50 percent commissions to foreign subpublishers, which it now owns, [my bold italics] before splitting the rest with the heirs. The heirs challenged that practice, but the Court of Appeals says the publisher can keep doing it. ~~Billboard

EMI is essentially double-dipping, paying itself half upfront and then with an additional 50% of the commissions before giving the rest to Ellington's heirs. Why did the court rule this way?

A sharply-divided Court of Appeals affirmed two previous decisions dismissing the case, which had accused the Sony/ATV Music subsidiary of exploiting decades-old contractual language on so-called "net receipts" and structural changes in the music industry in order to take two separate cuts from revenue generated overseas. 

Ellington's 1961 contract gave him 50 percent of any money the publisher received from sales outside the U.S., but only after foreign “subpublishers” had taken their own cut. Importantly, though, the music industry has changed since Ellington signed the deal: the foreign subpublishers taking a cut were independent entities in 1961; today, they're affiliated with EMI. 

The musician's heirs sued for breach of contract in 2010, claiming the modern arrangement meant EMI was effectively receiving sequential cuts of the same revenue. But a trial court, and later a mid-level appeals court, ruled that the plain language of the contract didn't care whether affiliated and unaffiliated subpublishers were getting that first cut.  

“We note that the globalization of the music industry has rendered this 'net receipts' arrangement much more favorable to music publishers than to artists,” the court wrote. “Nonetheless, we must examine the parties' intentions based on the plain language within the four corners of the agreement.” ~~Law360

A key point of contention was the meaning of the word "affiliate" which Ellington's heirs argued included the foreign subpublishers under EMI's wing.

Not so, said the high court, which found that the “other affiliates” language referred only to connected entities that had existed in 1961 — not those created since. 

“Absent explicit language demonstrating the parties' intent to bind future affiliates of the contracting parties, the term 'affiliate' includes only those affiliates in existence at the time that the contract was executed,” the court wrote.  ~~Law360

The dissenting judge did make the seemingly obvious point that "nothing in th[e] common definition suggests that an affiliate does not include a foreign affiliate," and questions the Court for accepting EMI's framing of the word and the issues.

As a final note, appellant's [Ellington's] claims should give us pause because they suggest this is not, as the majority seems to believe, the unintended results of "the globalization of the music industry" that renders the Agreement "more favorable to music publishers than to artists" (majority op at 11 [footnote omitted]). Indeed, I share the concurring opinion's sense that there is something troubling about interpreting "affiliate" in the context of this Agreement, as the majority does, to include only those affiliates in existence at the formation of the contract (concurring op at 1). This interpretation sets the stage for the type of abuse alleged here, namely corporate reconfigurations that avoid the understanding of the parties. ~~Justia

By now it seems like old news that artists are constantly at the mercy of the media conglomerates and their methods of dealmaking and accounting. And how harmful this imbalance is to the creatives.  Will this ever change? Or is the corporate power structure to slick and entrenched to ever have to?

Until then, its up to us as entertainment lawyers serving talent to do our utmost to protect our clients and their heirs with the power of the pen.  

To read the court's decision, click HERE.