BY:Michael I. Rudell
The recording artist Ashanti and her mother (who is her manager) have been denied summary judgment by the U.S. District Court for the Southern District of New York on the breach of contract and unjust enrichment claims brought against them by a record production company.1
In or around June, 1996, when Ashanti was sixteen, she and her mother (“Douglas'” or “defendants”) approached T.E.A.M. Entertainment (“T.E.A.M.” or “plaintiff”), a company specializing in the production of hip-hop and rhythm-and-blues recordings, seeking T.E.A.M.’s assistance in securing a recording contract with a major record label. T.E.A.M.’s owner, Genard Parker, agreed to work with them and did so, without a written contract, until February 18, 1997.
Then, the parties signed a two-page agreement (“First Production Agreement”) acknowledging that T.E.A.M. had produced three masters which Ashanti intended to use in an effort to secure a recording contract. The First Production Agreement provided for compensation to T.E.A.M. in connection with any such contract Ashanti might sign. From February 1997 through June 1997, Ashanti recorded additional demonstration recordings at T.E.A.M.’s studio. On June 18, 1997 the parties signed the Second Production Agreement, a twelve-page document which specified that Ashanti would provide her personal services exclusively to T.E.A.M. for the duration of the contract, which had an initial term of six months and various opportunities for extensions. This document superceded the First Production Agreement.
Under the Second Production Agreement, T.E.A.M. would endeavor to secure a record distribution agreement with a major record label. Ashanti retained the right to approve any such label, with Volcano Records being pre-approved. Tina Douglas warranted that Ashanti would perform all of her obligations under the Second Production Agreement and assumed personal liability for that performance.
In September of 1997, after defendants told T.E.A.M. that they wanted to be released from the Second Production Agreement in order to pursue a relationship with Noontime Music, Inc. (“Noontime”), the parties entered into a release agreement (“Release Agreement”) dated October 21, 1997 which, among other things, suspended the term of the Second Production Agreement for the sooner of thirty days or until Ashanti signed an exclusive recording agreement with Noontime. If no such agreement were signed within that thirty day period, the term of the Second Production Agreement would continue with a thirty day extension. If Ashanti did sign an agreement with Noontime, then the First and Second Production Agreements would “terminate and expire” as of the date of the agreement with Noontime, the parties would mutually release each other from obligations under the earlier agreements and the rest of the Release Agreement would govern the rights and obligations between them.
The Release Agreement further provided that if Ashanti entered into an agreement with Noontime, T.E.A.M. would be entitled to share in the proceeds of Ashanti’s first three albums recorded under the Noontime agreement. For the first album, plaintiff would be paid “an all-in recording fund” of $25,000.00 for each of two master recordings; if plaintiff produced additional master recordings for the first album, plaintiff would receive an additional, pro-rated all-in recording fund. The contract also provided that “Subject to [T.E.A.M.’s] full and timely performance of [its] production obligations hereunder, and provided [T.E.A.M. were] not in breach of any of [its] material obligation to [defendants] or Noontime,” defendants would instruct Noontime and its distributor to pay royalties to plaintiff according to a certain percentage scheme for all recordings sold through United States Normal Retail Channels.
If a second and third album were recorded under the Noontime agreement, defendants agreed to use their best efforts to cause Noontime and its distributor to allow T.E.A.M. to produce up to three recordings on each album according to a schedule of fees and royalties specified in the Release Agreement. Again, Tina Douglas assumed personal liability for Ashanti’s obligations.
On October 24, 1997, defendants signed an agreement with Noontime (“Noontime Agreement”). By letter dated February 17, 1998 T.E.A.M. was advised that, pursuant to the Release Agreement, the production agreements between T.E.A.M. and defendants were deemed terminated as of October 24, 1997, and Parker was directed to contact Noontime to “discuss the creative details regarding the masters which you have agreed to produce” for Ashanti’s album recorded under the Noontime Agreement. By letter dated February 24, 1998, Parker, through his representative, reported having so contacted Noontime and requesting the $25,000.00 due him under the Release Agreement. According to Parker, this amount never was paid.
Noontime entered into an agreement with Sony Music Entertainment (“Sony”) under which Sony would distribute Ashanti’s albums and pay Noontime and Ashanti an advance of $175,000.00. However, in or around July 1999 defendants terminated the Noontime Agreement because Sony had decided to “shelve” Ashanti’s project. Ashanti never released an album under the Noontime Agreement.
On or about August 3, 2000 defendants entered into a further agreement with the production company AJM Records(“AJM”), and in April of 2002 AJM entered into an agreement with Murder Inc., Records (“M.I.”), a subsidiary of Universal Music Group, under which that company would distribute Ashanti’s albums. Over the next two years, Ashanti and AJM received millions of dollars in advances from Universal and recorded songs for two albums, both of which sold over a million copies. Ashanti remains under contract with M.I./Universal, although she no longer is under contract with AJM.
By letter dated August 8, 2003, T.E.A.M. notified defendants that the Release Agreement is “hereby deemed null and void due to your failure to make any payment, provide the opportunity to produce tracks or tender any consideration whatsoever to Mr. Parker in blatant violation of the terms and conditions of the Release Agreement.” The letter further stated that the Second Production Agreement was reinstated and defendants also were allegedly in breach of that agreement. On February 23, 2004, plaintiff filed suit, alleging (1) breach of the Second Production Agreement; (2) beach of the Release Agreement, and (3) unjust enrichment. After discovery, defendants filed a motion for summary judgment as to each of plaintiff’s three claims.
The Court first reviews whether defendants breached the Release Agreement; for this would be the basis of their having breached the Second Production Agreement. Defendants assert that it was plaintiff who breached the Release Agreement by failing to “execute such additional agreements or documents as may be appropriate or requested to effectuate the purposes of this Agreement.” The particular documents to which defendants refer are the agreements between Noontime and plaintiff necessary to effectuate the agreement between Noontime and defendants. Plaintiff contends that this was because Noontime attempted to negotiate different terms between plaintiff and Noontime than those specified in the Release Agreement and the fault was Noontime’s, not plaintiff’s. The Court concludes that on this point there is evidence upon which a jury could decide the issue either way, and, hence, summary judgment is denied.
The Court rejects defendants’ argument that they, in fact, fully performed their obligations under the Release Agreement, noting that one of those obligations was to pay plaintiff $25,000 upon signing of the Noontime Agreement. This was never done. As for the remaining $25,000 that would have been due after Noontime accepted the masters, and any additional monies owed to plaintiff, defendants attempt to escape liability on the ground that no records under the Noontime Agreement ever were made. The Court notes that this purported defense of impossibility is an affirmative defense and, as such, must be set forth in defendants’ responsive pleading. The general rule in federal courts is that a failure to plead an affirmative defense results in waiver, and because defendants did not raise impossibility in their answer, it is waived.
Defendants also argue that, even if a jury could find that they breached the Release Agreement, they still would be entitled to summary judgment because such a claim is prohibited by the Release Agreement, which contains a mutual release of all claims and obligations arising under both the First and Second Production Agreements. Plaintiff argues that defendants’ breach of the Release Agreement gave it the option of rescinding that agreement and thereby nullifying the release, and that plaintiff properly invoked this option under the letter of August 8, 2003.
Under New York law, rescission is an extraordinary remedy, appropriate only when the breach is found to be material and willful or, if not willful, so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract. Here, the Court finds that there is evidence from which a reasonable juror could conclude that defendants breached the Release Agreement, in which case rescission of that agreement was appropriate.
Finally, the Court turns to plaintiff’s claim for unjust enrichment based upon defendants’ use of plaintiff’s studio and production services for the period between June 1996 and February 1997, before the parties entered into any written agreement. The Court indicates that this claim falls within the six-year statute of limitations because a claim for unjust enrichment accrues only when the enrichment actually becomes unlawful. Here, evidence indicates that the parties understood that defendants would compensate plaintiff for the use of its facilities only when they had received a contract and payment from a major record label. This did not occur until after March 4, 1998.
Further, defendants have not presented any evidence demonstrating that there was a written contract between the parties covering the disputed subject matter, which would preclude a claim for unjust enrichment. Accordingly, plaintiff’s claim for unjust enrichment also withstands summary judgment.
1 T.E.A.M. Entertainment, Inc. v. Douglas, 361 F. Supp.2d 362 (2005).