Waite v. UMG Recordings, Inc.

477 F.Supp.3d 265

John WAITE, etc., et al., Plaintiffs,

v.UMG RECORDINGS, INC., etc., et al., Defendants.

19-cv-1091 (LAK)

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

Signed August 10, 2020

Ryan E. Cronin, Roy W. Arnold, David M. Perry, Gregory M. Bordo, Blank Rome LLP, Evan S. Cohen, Maryann R. Marzano, Cohen Music Law, Attorneys for Plaintiffs.

Steven M. Bierman, Melanie Berdecia, Rollin A. Ransom, Lisa M. Gilford, Lauren De Lilly, Sidley Austin LLP, Richard S. Mandel, Thomas Kjellberg, Cowan, Liebowitz & Latman, P.C., Attorneys for Defendant UMG Recordings, Inc.

MEMORANDUM OPINION

Lewis A. Kaplan, District Judge.

In the music recording industry, artists commonly sign agreements with record labels in which the artists agree that the companies will own the copyright to sound recordings made pursuant to those agreements. These grants allow the companies to distribute and sell the artists’ sound recordings.

Section 203 of the Copyright Act of 1976 provides an author a right to terminate such a grant of copyright thirty-five years after the grant's execution, or forty years thereafter if the grant covers the right of publication, if certain conditions are met.¹ As the Court has explained previously, "[t]ermination is not automatic. The earlier grant will remain in effect absent a termination notice.... Upon the effective date of termination [listed in the notice], the grant is terminated and the copyright reverts to the author."²

Plaintiffs allege that defendant has ignored their valid termination notices and has continued to market and sell plaintiffs’ sound recordings following the effective dates of termination, thereby infringing upon their copyrights. In a prior opinion, familiarly with which is assumed, the Court granted in part and denied in part defendant's motion to dismiss the First Amended Complaint ("FAC").³ Plaintiffs now move to amend their complaint in order to add additional parties, assert infringement claims with respect to the sound recordings identified previously in the FAC for which the effective dates of termination now have passed, "streamline and refine" their class allegations, and cure the deficiencies identified in the Court's ruling on the motion to dismiss.

Defendant objects to the following aspects of the Proposed Second Amended Complaint ("PSAC"): (1) joinder of three additional named plaintiffs, (2) joinder of Capitol Records, LLC ("Capitol"), a UMG affiliate, as a defendant, (3) allegations that plaintiffs John Waite and Joe Ely made certain grants directly, rather than through or by third parties, (4) allegations concerning Ely's 1976 agreement, known as a "gap grant," and (5) clarification of the alleged need for declaratory relief.

I. Legal Standards

When, as here, a party is not entitled to amend its complaint as a matter of course, it may do so "only with the opposing party's written consent or the court's leave."⁴ Under Rule 15(a), leave to amend should be "freely give[n]."⁵ The Second Circuit has instructed that a motion to amend "should be denied only for such reasons as undue delay, bad faith, futility of the amendment, and perhaps most important, the resulting prejudice to the opposing party."⁶

Undue delay may be an appropriate basis to deny an amendment where "the motion is made after an inordinate delay, no satisfactory explanation is offered for the delay, and the amendment would prejudice the defendant."⁷ "[A]bsent a showing of bad faith or undue prejudice," however, "mere delay does not provide a basis for a district court to deny the right to amend."⁸

When considering whether an amendment would be unduly prejudicial to an opposing party, the district court should consider whether the amendment would "(I) require the opponent to expend significant additional resources to conduct discovery and prepare for trial; (ii) significantly delay the resolution of the dispute; or (iii) prevent the plaintiff from bringing a timely action in another jurisdiction."⁹ However, "[t]he adverse party's burden of undertaking discovery, standing alone, does not suffice to warrant denial of a motion to amend a pleading."¹⁰

"An amendment to a pleading is futile if the proposed claim could not withstand a motion to dismiss pursuant to [Federal Rule of Civil Procedure] 12(b)(6)."¹¹ This inquiry thus turns on whether the proposed allegations state a claim upon which relief can be granted.

Defendant argues that plaintiffs’ motion is governed by Rule 16 rather than by Rule 15. Rule 16 is relevant to a motion to amend where "a scheduling order governs amendments to the complaint, and a plaintiff wishes to amend after the deadline to do so has passed[.]"¹² Here, the scheduling order did not establish a deadline for amending the complaint or for the joinder of additional parties.¹³ The Court thus will evaluate plaintiffs’ motion against Rule 15 ’s standard.¹⁴

II. Joinder of Additional Parties

When a proposed amendment would add new parties, Rule 21, rather than Rule 15, governs. Under Rule 21, new parties may be added "at any time, on just terms[.]"¹⁵ In considering motions under Rule 21, courts apply the same liberal standard afforded to motions to amend under Rule 15(a).¹⁶ Similarly, while leave to add parties should be "freely given," a court's refusal to grant leave to do so "is justified on the grounds of ... undue delay and undue prejudice."¹⁷

A. Joinder of The Dream Syndicate Members as Plaintiffs

Plaintiffs seek to join three additional individuals as named plaintiffs: Steven Wynn, Dennis Mehaffey, and David Pellish, who together performed as the band The Dream Syndicate. Plaintiffs contend that these additions would "serve an important role in buttressing the claims alleged by other Plaintiffs" and would "not materially change the scope of the case or the alleged classes."¹⁸ Defendant objects to the amendment on the grounds that plaintiffs have not demonstrated "good cause," as it claims is required under Rule 16, and that defendant would be prejudiced by the additional discovery that would be required.

As a threshold matter, plaintiffs’ proposed amendment is governed by Rule 21, and informed by Rule 15 for the reasons explained above. Accordingly, plaintiffs’ amendment must be considered in light of Rule 15 ’s liberal standard, and not Rule 16's more demanding "good cause" standard.

Plaintiffs do not contest defendant's claim that they were aware of the Dream Syndicate members prior to filing the original complaint, and could have added them as plaintiffs far earlier in the litigation, rather than in proximity to the initial discovery deadline. On balance, however, this delay would not result in significant prejudice to defendant. Plaintiffs represent that the addition of the Dream Syndicate plaintiffs would require limited discovery warranting less than two days of depositions. Moreover, their joinder would not alter the scope of the claims against defendant, as they would be substantially similar to others raised already by other named plaintiffs. Finally, plaintiffs have not moved yet for class certification, and jury trials have been suspended indefinitely in this district due to the COVID-19 pandemic. In light of these considerations, and mindful of the liberal standard against which this amendment must be judged, the Court will grant plaintiffs’ motion as to the joinder of the Dream Syndicate plaintiffs.

B. Joinder of Capitol as a Defendant

Plaintiffs seek to join Capitol based upon discovery and defendant's representations that Capitol is the property party with respect to certain claims.

It is undisputed that the parties first discussed adding Capitol as a defendant in December 2019, five months before this motion was filed. Plaintiffs contend that the intervening delay was due to defendant's refusal to produce documents to substantiate its contention that Capitol, rather than UMG, in some instances would be the proper party. On July 13, 2020, the Court granted plaintiffs’ motion to compel production of certain documents, including those related to Capitol.¹⁹

Defendant consents to the addition of Capitol, subject to the conditions that (1) plaintiffs be required to plead separate classes or subclasses as to each of UMG and Capitol, and (2) the addition not disrupt the current pretrial and trial schedule or otherwise delay the case or prejudice defendant.

The conditions that defendant proposes are unnecessary and impractical. First, creating separate subclasses, if necessary, can be achieved at the class certification stage. Second a commitment to maintaining the current trial schedule will not be feasible given the ongoing COVID-19 pandemic. Moreover, the discovery deadline has been adjusted already.²⁰

Even absent these conditions, UMG would not suffer any undue prejudice from adding Capitol as a defendant. As indicated above, UMG has been aware for several months that some of plaintiffs’ claims implicate Capitol. Moreover, UMG has been compelled to produce Capitol's documents. While plaintiffs perhaps should have acted more expeditiously, UMG would not be prejudiced unduly by the addition of Capitol as a defendant. Plaintiffs may amend their complaint accordingly.

III. Waite and Ely's Claims Involving Third Party Agreements

Only a "grant of a transfer or license of copyright or any right under a copyright, executed by the author" is subject to termination under Section 203.²¹ Thus, by the statute's terms, "third parties to a contract and loan-out companies, which ‘loan’ out an artist's services to employers and enter into contracts on behalf of the artist, do not have a termination right under the statute."²²

The FAC alleged that Waite entered into agreements with the recording studios through various loan-out companies and that Ely entered into his 1979 agreement through a third party company, South Coast. These agreements granted copyright to the recording studios. In other words, in these instances, the "grant of a transfer ... of a copyright" was made by the third party...