Dimensional Music Publishing, LLC. v. Kersey

448 F.Supp.2d 643

DIMENSIONAL MUSIC PUBLISHING, LLC., Plaintiff, v. Antoinette KERSEY, as Executrix of the ESTATE OF Tyrone G. KERSEY, Kisha Kersey, and Paul, Weiss, Rifkind, Wharton & Garrison, LLP, Defendants.

Civil Action No. 05-6437.

United States District Court, E.D. Pennsylvania.

August 25, 2006.

COPYRIGHT MATERIAL OMITTED

Joshua D.K. Snyder, Michael J. Boni, Kohn, Swift & Graf, P.C., Philadelphia, PA, Marc J. Goldstein, Hodgson Russ LLP, New York City, for Plaintiff.

Camille M. Miller, Brian J. Urban, Melanie A. Miller, Cozen & O'Connor, P.C., Wendy Beetlestone, William T. Hangley, Shanon S. Levin, Hangley Aronchick Segal & Pudlin, Philadelphia, PA, for Defendants.

MEMORANDUM

DUBOIS, District Judge.

I. INTRODUCTION

This lawsuit involves the rights to the song "Disco Inferno" (hereinafter "the Composition"). Plaintiff, a limited liability company engaged in music publishing, filed suit seeking a declaratory judgment that, under the provisions of an assignment made in 1977, it is the exclusive owner of all rights in the Composition, including the Composition's renewal rights. Compl. ¶ 3. In the event that the Court finds that plaintiff is not the exclusive owner of the renewal rights in the Composition, plaintiff alleges legal malpractice by defendant Paul, Weiss, Rifkind, Wharton & Garrison, LLP (hereinafter "Paul Weiss"), which represented plaintiff in acquiring the Composition.¹ Id. ¶ 5. Defendant Paul Weiss has filed a Motion to Dismiss or Stay This Action. For the reasons below, the Court denies defendant's Motion to Dismiss, but grants its Motion to Stay, subject to the requirement that Paul Weiss participate in all discovery in plaintiff's case against the Kersey defendants which relates to its potential malpractice liability.

II. BACKGROUND

A. The Composition At Issue

The following facts are taken from plaintiffs Complaint as well as affidavits submitted by both parties.²

The Composition was written by two Philadelphia songwriters, Tyrone Kersey and Leroy Green ("Green"). Id. On January 24, 1977, Kersey and Green entered into an Agreement of Sale (hereinafter "the 1977 Agreement") with Golden Fleece Music ("Golden Fleece") and Six Strings Music ("Six Strings") to sell the Composition's "title, words and music . . . and the right to secure copyright therein throughout the entire world, and to have and to hold the said copyright and all rights of whatsoever nature thereunder existing, now known or hereafter to become known." Id. ¶ 20. Golden Fleece and Six Strings then assigned all rights in the Composition to Six Strings on March 2, 1978. Id. ¶ 26. More than twenty years later, on February 16, 2001, Six Strings sold all of its rights, title and interest in the Composition, expressly including its renewal rights, to DreamWorks Music Publishing LLC ("DreamWorks"). Id. ¶ 27. Finally, on November 5, 2004, DreamWorks sold most of its music publishing catalog, including the Composition, to plaintiff for the sum of $ 42.8 million.³ Id. ¶¶ 43, 53.

In August 2005, after plaintiff acquired the DreamWorks catalog, defendant Steinberg Business and Music Advisory Services sent a letter to plaintiff on behalf of the Kersey Estate ("the Estate"),⁴ asserting that the 1977 Agreement did not transfer Kersey's renewal rights in the Composition to Six Strings and Golden Fleece, and that the Estate owned Kersey's 50% interest in the renewal rights of the Composition.⁵ Id. ¶¶ 3, 58. Plaintiff then filed this Complaint on December 15, 2005 against Antoinette Kersey, Kersey's sister and executrix of his estate; Kisha Kersey, Kersey's daughter and heir; David J. Steinberg and Steinberg Business and Music Advisory Services, Inc. (hereinafter "the Steinberg defendants"); and Paul Weiss. The Complaint sought a declaratory judgment against Antoinette and Kisha Kersey (hereinafter "the Kersey defendants") and the Steinberg defendants that plaintiff is the exclusive owner of all rights, including the renewal rights, in the Composition.⁶ Pleading in the alternative, plaintiff asserts a claim of legal malpractice against defendant Paul Weiss on the ground that the firm negligently represented plaintiff in the DreamWorks transaction.

B. Procedural History

Shortly after filing the Complaint, plaintiff filed a motion for partial summary judgment against the Kersey defendants on the legal question of the vesting of the Composition's renewal rights. On June 23, 2006, the Court issued a Memorandum and Order granting plaintiffs motion for partial summary judgment on this limited question. Dimensional Music Publ'g, LLC v. Kersey, 435 F.Supp.2d 452 (E.D.Pa.2006). The Court ruled that, assuming that Kersey validly transferred his renewal rights to plaintiffs predecessors in interest through the 1977 Agreement, the renewal rights to the Composition legally vested in plaintiff because plaintiff filed the application for renewal rights on January 5, 2005, when Kersey was still alive. Id. at 462.⁷ Plaintiffs remaining claim against the Kersey defendants—the claim arising out of the transfer of renewal rights to the Composition in the 1977 Agreement—is ongoing.

Should plaintiff lose its claim against the Kersey defendants, plaintiff named Paul Weiss as a defendant, on the ground that if it did not obtain "all right, title and interest in the Composition, particularly the 50% interest in the Renewal Rights that originally were owned by Tyrone G. Kersey ... this failure was the direct and proximate result of professional negligence—legal malpractice—by the co-defendant [Paul Weiss]." Compl. § 15. This negligence included, but was not limited to, defendant's "failure to ask for and obtain, and/or its failure to realize the significance of and report on" the 1977 Agreement and the Green February 2001 Agreement (see footnote 5 infra).⁸ Id. ¶ 75. As a "proximate and direct" result of defendant's negligence, plaintiff alleges it sustained damages including (but not limited to) overpayment for the Dream-Works catalog, lost profits from exploitation of 50% of the Composition's renewal rights, attorneys' fees paid to defendant, costs expended in evaluating the Kersey estate claim for copyright, and the loss of any profit from any subsequent re-sale of the Composition.⁹ Id. ¶ 76.

C. Plaintiff's Relationship With Defendant Paul Weiss

The exact relationship between plaintiff and defendant Paul Weiss is contested. The Court will outline each party's explanation of the relationship.

1. Plaintiffs Explanation

According to the Complaint, "certain entities," with financing "proposed to be provided by plaintiff," sought to acquire DreamWorks's music publishing assets in July 2004. Compl. ¶ 40. These entities "engaged Paul Weiss to represent them in connection with the proposed acquisition." Id. ¶ 41. The scope of this engagement included a "legal due diligence investigation of the copyright ownership rights" of the compositions in the DreamWorks catalog. Id. During the due diligence process, the proposed purchasers of the Dream-Works catalog determined that they could not finance the transaction. Id. ¶ 42. In August 2004, plaintiff was "again" invited to become the purchaser of the catalog. Id. To "induce" Paul Weiss to complete the due diligence work, plaintiff agreed to pay its outstanding legal fees for the work which had already been completed. Id.

As part of its due diligence work, defendant was instructed to order chain-of-title reports from DreamWorks for 27 specific works, including the Composition.¹⁰ Id. ¶ 43. According to plaintiff, Paul Weiss reported that all copyright interests in the Composition, including the renewal rights, had been transferred to DreamWorks, and that plaintiff, as purchaser, would acquire exclusive rights in the Composition through at least 2033.¹¹ Id. ¶ 44.

2. Defendant's Explanation

As explained by Paul Weiss,¹² its involvement in the DreamWorks deal began when the firm was retained in June 2004 to represent a company called Soundbank, which sought to acquire the music publishing catalog of DreamWorks. Def. Memo., Harper Decl. ¶ 6. Soundbank retained Paul Weiss at the request of Bridgepoint, a U.K. private equity fund which financed Soundbank's bid. Id. Paul Weiss spent the next month conducting due diligence on the DreamWorks catalog and drafting a proposed asset purchase agreement. Id. ¶ 7. According to Paul Weiss, the asset purchase agreement is key in any music publishing deal, because it contains representations and warranties that the seller actually owns the rights to the music that the seller is claiming to sell. Id. ¶ 8. At the time Paul Weiss was retained, DreamWorks's counsel, Grubman & Indursky, had already drafted an asset purchase agreement. Id. ¶ 9. In this draft agreement, DreamWorks represented that it owned only whatever interest was set forth in the thousands of contracts comprising the music catalog; it did not represent what that interest actually was.¹³ Id. In contrast, the asset purchase agreement drafted by Paul Weiss contained unconditional representations and warranties that the seller owned the copyrights interests set forth in an attached (but as-yet-unprepared) schedule. Id. ¶ 10. The final asset purchase agreement used in the Dream-Works catalog transaction, however, was similar to the original agreement drafted by Grubman & Indursky, with no representations as to what interests in the works plaintiff was actually acquiring.¹⁴ Id. ¶ 18.

In early July 2004, Paul Weiss learned that Bridgepoint, the fund backing Southbank's bid, had withdrawn its support. Because Bridgepoint had been paying Paul Weiss's's fees, Paul Weiss stopped its work on the deal. Id. ¶ 11, New funding was acquired, however, from JDS Capital ("JDS"). Id. Paul Weiss briefly resumed its work on the deal, but stopped a few weeks later, when JDS decided that Paul Weiss's's hourly rates were too high. Id. ¶ 12.

Before ending the relationship with Southbank and JDS, Paul Weiss finished its due diligence...