Popovich v. Sony Music Entertainment, Inc.

RALPH B. GUY, JR., Circuit Judge,

dissenting.

I respectfully dissent. I would vacate the jury verdict and remand for entry of judgment in favor of Sony, because the original contract precluded Popovich from obtaining damages for Sony’s partial failure to perform its promise regarding plaintiffs logo. As a result, there is no need to address the issues raised in Popo-vich’s cross-appeal. Since the court’s opinion sets forth the facts in some detail, they will not be repeated here.

I.

A. The Limitation of Remedies Clause

The crux of this appeal is whether the limitation of remedies contained in paragraph 7.05 of the 1977 agreement precludes Popovich from recovering damages. The district court decided that the remedy limitation applied only to CBS’s obligations under paragraph 7.05 of the 1977 agreement, and not to any new obligations created by the 1998 settlement agreement because the phrase “this paragraph 7.05” limited the clause to only obligations created by paragraph 7.05. Consequently, the district court allowed Popovich to pursue money damages for Sony’s failure to comply with logo obligations required only by *363the 1998 settlement agreement. Sony argues that (1) the limitation on remedies applied to obligations arising out of both the 1977 agreement and the settlement agreement, or alternatively (2) no new obligations were created by the 1998 settlement agreement because the settlement agreement merely reconfirmed Sony’s preexisting legal obligation regarding the CIR logo.

The parties raised this issue in motions for summary judgment and in motions for judgment as a matter of law. “In cases where an appellant made a Rule 56 motion for summary judgment that was denied, reiterated those same arguments in a Rule 50(a) motion at the close of evidence that was also denied, lost in front of a jury, and then renewed its arguments in a rejected Rule 50(b) motion after the entry of judgment, we will review only the denial of the Rule 50(b) motion.” Barnes v. City of Cincinnati, 401 F.3d 729, 736 (6th Cir.), cert. denied, 546 U.S. 1003, 126 S.Ct. 624, 163 L.Ed.2d 506 (2005). We review de novo a denied motion for a Rule 50 judgment as a matter of law. Id. “Judgment as a matter of law may only be granted if, when viewing the evidence in a light most favorable to the non-moving party, giving that party the benefit of all reasonable inferences, there is no genuine issue of material fact for the jury, and reasonable minds could come to but one conclusion in favor of the moving party.” Id.

The 1977 agreement and 1998 settlement agreement provide that they are to be interpreted according to the laws of the State of New York. The construction and interpretation of a contract is a question of law for the court. W.W.W. Assocs. v. Giancontieri, 77 N.Y.2d 157, 565 N.Y.S.2d 440, 566 N.E.2d 639, 642 (1990). The court must determine if the contract is ambiguous. Id. If no ambiguity exists, the court must interpret the contract. Peder-sen v. Stockard S.S. Corp., 268 A.D. 992, 51 N.Y.S.2d 675 (1944). If an agreement sets forth the parties’ intent clearly and unambiguously, the court may not consider extrinsic evidence to determine the parties’ contractual obligations. Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 750 N.Y.S.2d 565, 780 N.E.2d 166, 170 (2002). The “reasonable expectation and purpose of the ordinary business[person] when making an ordinary business contract serve as the guideposts to determine intent.” Uribe v. Merchants Bank of N.Y., 91 N.Y.2d 336, 670 N.Y.S.2d 393, 693 N.E.2d 740, 743 (1998) (internal quotation marks and citations omitted). Moreover, the contract must be read as a whole, with every part interpreted to give effect to the contract’s general purpose. Westmoreland Coal Co. v. Entech, Inc., 100 N.Y.2d 352, 763 N.Y.S.2d 525, 794 N.E.2d 667, 670 (2003).

“When a term or clause is ambiguous, ‘the parties may submit extrinsic evidence as an aid in construction, and the resolution of the ambiguity is for the trier of fact.’ ” Geothermal Energy Corp. v. Caithness Corp., 34 A.D.3d 420, 825 N.Y.S.2d 485, 489 (N.Y.App.Div.2006) (quoting Pellot v. Pellot, 305 A.D.2d 478, 759 N.Y.S.2d 494, 497 (N.Y.App.Div.2003)).

“Whether multiple writings should be construed as one agreement depends upon the intent of the parties.” Commander Oil Corp. v. Advance Food Serv. Equip., 991 F.2d 49, 52-53 (2d Cir.1993). The intent of the parties is usually a question of fact reserved for the jury. Rudman v. Cowles Commc’ns, Inc., 30 N.Y.2d 1, 13, 330 N.Y.S.2d 33, 280 N.E.2d 867 (1972). “But if the documents in question reflect no ambiguity as to whether they should be read as a single contract, the question is a matter of law for the court.” TVT Records v. Island Def Jam Music Group, 412 F.3d 82, 89 (2d Cir.2005), cert. denied, — *364U.S. —, 126 S.Ct. 2968, 165 L.Ed.2d 951 (2006).

The settlement agreement specified that “[e]xcept as otherwise provided in [this settlement agreement], the parties expressly ratify and confirm in all respects the January 1977 Agreement and each and every provision thereof.” It is true that the settlement agreement does not use the term “incorporate” to express its relationship with the 1977 Agreement and does not mention paragraph 7.05 specifically. Nevertheless, the terms “ratify” and “confirm,” together with the broad language immediately following (“each and every provision”), leave no doubt in my mind that the parties intended for the settlement agreement and the 1977 agreement to be interpreted in conjunction with each other. I read the 1977 agreement as unchanged by the settlement agreement except where the settlement agreement expressly amends or modifies the 1977 agreement.

The conclusion that paragraph 5 of the settlement agreement must be read together with the 1977 agreement does not resolve the more difficult issue of whether paragraph 5 of the settlement agreement replaced, modified, expanded, or left untouched paragraph 7.05 of the 1977 agreement. The district court decided that the settlement agreement was ambiguous as to whether it added new logo obligations, such as placing the logo on CDs and on compilation albums.1 To the extent that the settlement agreement did create new obligations, the district court decided that the limitation of remedy clause did not apply to those new obligations. Sony argues that the settlement agreement did not create new obligations, and even if it did, the limitation on remedies clause applies to the new obligations as well as the old.

I turn to the second argument first, because if Sony is correct, there is no need to decide the first issue. The district court reasoned:

The court notes, however, that the remedy limitation unambiguously applies only to CBS’ obligations under paragraph 7.05 of the 1977 Agreement, and not to obligations under other paragraphs of the 1977 Agreement or to new obligations under any future agreements. The text specifically covers failure to comply with “obligations pursuant to this paragraph 7.05.” (1977 Agreement, ¶ 7.05.) (emphasis added). The presence of the word “this” emphasizes that the remedy limitation applies only to one specific paragraph of one specific agreement.

The district court also determined that it was required to conduct “an independent reading of the 1977 and 1998 Agreements to determine whether they are ambiguous as to remedy” and “the 1998 Logo Requirement does not contain any remedy-limiting language, nor does it reference the 1977 Agreement by name.”

The district court did not interpret the two agreements together, as it should have done, when deciding whether the limitation of remedies clause applied to any new obligations created by the settlement agreement. The limitation of remedies clause is not mentioned in the settlement agreement, a strong indication that the parties intended for it to remain in effect. I read paragraph 5 of the settlement agreement as modifying paragraph 7.05 of the 1977 agreement, either by clarifying Sony’s existing obligations or by creating *365new obligations as to the type of product to which the logo obligation attached, but not replacing 7.05 in its entirety and not displacing the remedy limitation clause.

In reaching the opposite conclusion, the district court placed undo emphasis on the phrase “this paragraph.” Since paragraph 5 of the settlement agreement, at most, modified paragraph 7.05, paragraph 5’s modifications could reasonably be viewed as having become a part of paragraph 7.05, and therefore “this paragraph” includes the obligations created in paragraph 7.05 as modified by paragraph 5 of the settlement agreement. Moreover, paragraph 7.05 was the only paragraph in the agreement to address logo issues, so limiting damages for violations of “this paragraph” is most reasonably interpreted as distinguishing the limited remedy available for breaches of logo-related obligations from breaches arising from other subject matters in the contract.

The settlement agreement demonstrates that Popovich knew how to utilize the opportunity created by the settlement agreement to change unfavorable terms of the 1977 agreement by doing so expressly. Under the 1977 agreement, the agreement could not be changed or terminated “except by an instrument signed by an officer of CBS.” The settlement agreement expressly modified that provision by replacing the quoted language with “except by an instrument signed by both parties.” The absence of any express language modifying the remedy limitation clause unambiguously indicates that the parties did not intend to create new remedies if Sony failed to correctly place the CIR logo on Meat Loaf products.

B. Equitable Arguments

Popovich contends that even if the limitation on remedies clause does apply generally, the court should not enforce the clause to prevent him from collecting damages because of (1) Sony’s intentional conduct, (2) Sony’s breach of the covenant of good faith and fair dealing, and (3) judicial estoppel.

1. Intentional Conduct

Popovich contends that the limitation of remedies clause should apply only to inadvertent mistakes, not intentional conduct, based on the testimony of Gary Casson, who testified that the clause is boilerplate in the music industry to protect record companies from inadvertent mistakes. New York courts enforce limitation of liability clauses despite one party’s argument that it should not be enforced because the breach was intentional. See Metro. Life Ins. Co. v. Noble Lowndes Intern., Inc., 84 N.Y.2d 430, 618 N.Y.S.2d 882, 643 N.E.2d 504, 507 (1994). In Metropolitan Life, the New York court explained that a limitation on liability is an allocation of risk to which both parties agree, and courts should let the parties lie in the bed they made. Id. (citing 5 Corbin, Contracts, § 1068, at 386). Professor Corbin notes exceptions for contracts of adhesion and breaches that are also tortious — neither of which is the case here. Id. Even assuming there is case law to support this legal theory, it is not clear that any breach was intentional.

2. Covenant of Good Faith and Fair Dealing

Popovich argues that the covenant of good faith and fair dealing prevents Sony from enforcing the limitation of remedy clause. A covenant of good faith and fair dealing is implied in every contract under New York law. Dalton v. Educ. Testing Serv., 87 N.Y.2d 384, 639 N.Y.S.2d 977, 979, 663 N.E.2d 289 (1995). Part of the duty of good faith is an obligation to perform in a timely manner. Steinman v. Olafson, 1 Misc.2d 50, 149 N.Y.S.2d 31 *366(N.Y.App.Term 1955). As Popovich states in his own brief, however, a separate action may be brought for failure to comply with the separate obligation to render timely performance. Truglia v. KFC Corp., 692 F.Supp. 271, 276-77 (S.D.N.Y.1988). Popovich argues that Sony’s belated response to his complaints about the missing logo constitutes a breach of Sony’s duty of good faith, but Popovich did not allege a breach on that ground. Furthermore, Sony submitted evidence of its attempts to cure its breach of the logo requirement after Popovich’s complaints, and Popovich has not conclusively shown that Sony intentionally failed to perform in a timely manner.

3. Judicial Estoppel

Popovich argues that because Sony previously argued that money damages were available, it should now be estopped from arguing that damages are unavailable. The doctrine of judicial estoppel “prevents a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase.” New Hampshire v. Maine, 532 U.S. 742, 749, 121 S.Ct. 1808, 149 L.Ed.2d 968 (2001) (internal quotation marks and citation omitted). We consider three factors before deciding if judicial estoppel applies. First, a party’s later position must be clearly inconsistent with its earlier position. Second, the party must have succeeded in persuading a court to accept that party’s earlier position. Third, the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped. Id.

Popovich originally sought money damages for breaches that had occurred and an order of specific performance with regard to Sony’s future obligations. Popo-vich sought a temporary restraining order to force Sony to place the CIR logo on Meat Loaf songs distributed via the internet. The district court refused to issue the restraining order primarily because it concluded that Popovich was not likely to succeed on the merits of his claim that the logo obligation extended to internet releases. The fact that damages were or were not available was not the district court’s primary justification for denying the restraining order. Furthermore, even if Sony took the position that damages were available, its position extended only to damages regarding the internet releases, not CDs, and the damages awarded by the jury related to CDs.

For these reasons, I would reverse the denial of judgment as a matter of law, vacate the jury’s verdict, and remand for entry of judgment in favor of Sony.

. A compilation album is an album comprised of master recordings from more than one artist.