February 13, 2013

Magistrate Recommends Sony's Motion To Dismiss Royalty Case Should Be Denied

Mahoney v. Sony Music Entertainment, No. 1:12-cv-05045 (S.D.N.Y. filed 02/11/13) [Doc. 39].

Plaintiff Edward Mahoney brought this breach of contract action against Sony Music Entertainment for damages arising from a dispute over the amount of royalties owed under the parties' contract.  The parties' relationship is governed by a 1985 Agreement and 1991 amendment (collectively, the "Contract").  The Contract requires Sony to pay royalties to Mahoney in exchange for certain uses of Mahoney's musical recordings. Sony moved to dismiss Mahoney's third amended complaint, other than a digital downloads claim, alleging that Mahoney failed to comply with the Contract's notice-and-cure provision, a condition precedent to bringing a breach of contract claim.

The Magistrate Judge first discussed the standard on a Fed. R. Civ. P. 12(b)(6) motion to dismiss.  Then, the Magistrate Judge discussed the proper circumstances to consider documents beyond those attached to the Complaint, and found that the Contract and the notice letters referred to in the third amended complaint and attached to the parties' motion papers may be considered on the motion to dismiss.

Turning to the merits, the Magistrate Judge found that plaintiff's breach of contract claims should not be dismissed for alleged noncompliance with the Contract's notice requirement.  The Court found that Mahoney's third amended complaint expressly alleged compliance with the Contract's notice requirement. Further, the parties did not dispute that Mahoney sent and Sony received the letters, i.e., the two writings Mahoney proffered as notice letters.  Rather, Sony's challenged the adequacy of the purported notice, i.e., whether Mahoney's letters identified the nature of Mahoney's objections to the royalty statements with sufficient specificity.

Thus, the Magistrate Judge considered the standards for evaluating the sufficiency of the notice.  Applying those standards to the case, the Magistrate Judge found that the Contract's notice provision called for written notice of any alleged royalty deficiencies, but did not state what information must be contained in the notice.  "The Court will not allow the Contract's notice provisions to require, in essence, an audit before suit when the Contract did not directly require an audit."  Continuing, "this is not a case where the objecting party sent a vague notice and the allegedly breaching party (here, Sony) was precluded from curing because it could not obtain additional information; rather, Mahoney and Sony engaged in ongoing discussions of Mahoney's claims, during which they discussed the bases for Mahoney's objections and the potential for litigation in the absence of a resolution, and Sony had control of all of the royalty-related information."  Thus, in this context, the Magistrate Judge found that Mahoney's notice was sufficient to serve the general purpose of the contractual royalty notice requirement.  For these reasons, the Magistrate Judge recommended that Sony's motion to dismiss in part Mahoney's third amended complaint should be DENIED.