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Date: 04-17-2019
Case Style:
Brown v. Gerald Goldstein
Case Number: B278949
Judge: Zelon, J.
Court: California Court of Appeals Second Appellate District, Division Seven on appeal from the Superior Court, County of Los Angeles
Plaintiff's Attorney: Kenneth D. Freundlich and Michael J. Kaiser and Max J. Sprecher
Defendant's Attorney: Joseph S. Klapach and Gregory Bodell
Description:
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Nosotros hablamos español
Former and current members of the band WAR filed a
breach of contract action alleging that their music publisher had
failed to pay them a share of the royalties generated from public
performances of the band’s songs.
The publisher filed a motion for summary judgment
arguing that the parties’ music publishing agreement did not
require it to pay the band any royalties derived from song
performances. Plaintiffs, however, argued the agreement was
ambiguous, and filed extrinsic evidence in support of their
interpretation. The trial court concluded the agreement was not
reasonably susceptible to the plaintiffs’ proposed interpretation,
and granted judgment in the publisher’s favor. We reverse.
FACTUAL BACKGROUND
A. Background Information Regarding the Music
Publishing Industry
A music publishing agreement is a contract between a
songwriter and a publishing company that sets forth the
ownership of the copyright in the subject musical compositions,
and the division of revenue generated from the use of those
compositions. Under the traditional form of music publishing
agreement, the songwriter assigns his or her copyright interest in
the composition to the publisher. In return, the publisher agrees
to promote and exploit the composition on the market, and pay
the songwriter his or her share of royalties. (See generally
Broadcast Music, Inc. v. Roger Miller Music, Inc. (6th Cir. 2005)
396 F.3d 762, 765 (Roger Miller) [describing the “basics of the
music industry”].)
There are four primary categories of royalty income
generated from music publishing: (1) “mechanical royalties,”
2
consisting of income from the sale of records, audiocassettes,
compact discs, etc.; (2) “synchronization royalties,” consisting of
income from music that is synchronized with a visual image, such
as a movie, television show or commercial; (3) “song book and
folio royalties,” consisting of income from the sale of printed
music; and (4) “public performance royalties,” consisting of
income from public performances of the music composition,
including, for example, radio broadcasts, streaming broadcasts
and live performances in music venues.
In standard publishing agreements, the publisher is
responsible for collecting the first three categories of royalties
from third parties who have licensed the composition, and then
paying the songwriter his or her contracted share of those
royalties, typically 50 percent. However, the writer and
publisher normally agree to affiliate with a “performing rights
organization” (PRO) to collect and distribute public performance
royalties (hereafter performance royalties or performance
income). “Broadcast Music, Inc. (BMI) and the American Society
of Composers, Authors and Publishers (ASCAP) are the two
principal [PROs] operating in the United States.”1 (Roger Miller,
supra, 396 F.3d at p. 765.) “Commonly, writers and publishers
1 “ASCAP was created in 1914 by music creators and
publishers as an unincorporated membership association. BMI
was founded by broadcasters in 1939. Each represents hundreds
of thousands of songwriters, composers, and publishers who hold
copyrights in millions of musical works. They negotiate,
implement, and enforce agreements with licensees that grant the
right to perform their members’ copyrighted songs. . . . Together,
ASCAP and BMI license the music performance rights to most
domestic copyrighted music in the United States.” (Broadcast
Music, Inc. v. DMX Inc. (2d Cir. 2012) 683 F.3d 32, 36.)
3
agree to be paid their respective shares of performing rights
royalties directly by the [PRO].” (Ibid.) As with most other forms
of music publishing income, the songwriter is typically entitled to
50 percent of the performance royalties, and the publisher is
entitled to the remaining 50 percent.
B. Summary of the Parties’ Agreements
1. The 1970 Agreement
In 1970, each member of the band WAR entered into an
identically-worded music publishing agreement with Far Out
Music (FOM), then owned by Gerald Goldstein and his nowdeceased
partner, Stephen Gold. In exchange for each band
member’s copyrights to the music compositions he had written (or
co-authored), FOM agreed to pay the following royalties, set forth
in paragraph 9: (1) 4 cents per copy of sheet music, and 10
percent of income generated from sale of music folios; and (2) 50
percent of the net sums received from mechanical royalties,
synchronization royalties and foreign income (income generated
from the sale or license of the compositions outside the United
States). Paragraph 9(d) of the Agreement, however, directed that
the writer “shall receive his public performance royalties . . .
directly from his own affiliated performing rights society and
shall have no claim whatsoever against publisher for any
royalties received by publisher as a distribution from any
performing right society which makes payment directly . . . to
writers authors and composers.”2
2 The 1970 Agreement clarified that the royalties described
in paragraph 9 were “payable solely to Writer in instances where
Writer is the sole author of the entire composition. . . . However,
in the event that other songwriter(s) is (are) co-author(s) along
4
The 1970 Agreement did not entitle the band members to
any form of payment other than the royalties set forth in
paragraph 9.
2. The 1972 Memorandum of Understanding
Following the publication of a successful album in 1971, the
band retained attorney Nicholas Clainos to represent them in
litigation against FOM and several FOM-related entities. As
part of the litigation, the band sought to terminate the 1970
Agreement, and negotiate a new agreement that included more
favorable terms.
After extensive negotiations between Clainos and Stephen
Gold, the parties signed a “Memorandum of Agreement” on
August 22, 1972 (the MOA) that included the following preface:
“Prior to the preparation of formal contracts between [the band
members] and [FOM], this memorandum of agreement will
confirm the agreements we have reached with respect to the
subject matter contained herein.” The MOA further provided
that each band member would “enter into an exclusive songwriter
agreement upon the terms and conditions hereinafter set forth,
as well as those standard terms which are customary in the
entertainment industry in the agreements of this type.”
Paragraph 3(b) of the MOA described the royalties FOM
had agreed to pay the band, which were essentially identical to
the royalties set forth in paragraph 9 of the 1970 Agreement:
“The songwriter will receive $.04 for sheet music; 10% of the
wholesale selling price for other printed copies; 50% of all net
with the Writer on any specific work hereunder, then the
foregoing royalties shall be divided equally between Writer and
the other songwriters for such work unless another division of
royalties is agreed upon between the parties concerned.”
5
sums received from the utilization of mechanical, electrical
transcriptions, and synchronization rights; and 50% of all foreign
monies received. It is acknowledged that the writer will receive
directly from his own performing rights society the writer’s
portion of any and all performance monies which shall become
due.”
In addition to the royalties described in paragraph 3(b),
however, the MOA included a new provision, set forth at
paragraph 3(e), that entitled the band to a share of the income
FOM received from the exploitation of the compositions: “In
addition to the foregoing, the writer shall receive with respect to
those songs which he has written, a sum equal to 30% . . . share
of publisher’s income (after deduction for collection fees, direct
costs and administration fees).”
The final paragraph of the MOA reiterated that the terms
set forth therein “correctly reflect[ed] [the signatories’] mutual
understanding. . . . Until formal contracts are entered
into . . . reflecting the agreements set forth above, this
memorandum of agreement shall for all purposes govern and
bind the parties hereto.”
3. The 1972 Agreement
Shortly after signing the MOA, the parties signed the 1972
Agreement, which was to take effect as of August 22, 1972, the
same date the MOA was signed.3
3 As with the 1970 Agreement, each member of the band
signed a separate, identically-worded agreement that assigned
FOM the copyrights to the musical compositions he wrote (or cowrote)
in exchange for the payments described therein. The
individual 1972 Agreements likewise included language
clarifying that the payments described therein were to be paid
6
Paragraph 7 of the 1972 Agreement set forth the royalties
FOM agreed to pay the band, which were the same amounts set
forth in paragraph 3(b) of the MOA. The 1972 Agreement
however, contained modified language regarding the payment of
performance royalties. Paragraph 7(c), for example, stated that
the writer was to receive “50% of any and all net sums actually
received by the Publisher from the mechanical rights, electrical
transcriptions, . . . synchronization and . . . and all other rights
(except as otherwise specifically provided for herein) . . ., except
that the Writer shall not be entitled to share in any sum or sums
received by the Publisher from [a PRO].” Paragraph 7(d)
similarly provided that band members were entitled to 50 percent
of the net sum of any foreign income “other than public
performance uses for which Writer is paid by any [PRO].”
Finally, paragraph 7(f) confirmed that “the publisher shall
not be required to pay royalties earned by reasons of the public
performances of the composition; said royalties being payable
only by the [PRO] with which Writer is or may in the future
become affiliated.”
As with the MOA, the 1972 Agreement included an
additional provision, set forth at paragraph 22, that entitled the
writer to receive a 30 percent share of FOM’s revenue after the
deduction of certain administrative costs and fees:
solely to the writer “in instances where Writer is the sole author
and composer of the composition,” and “with regard to
compositions where there are other writers, the Writer shall be
paid only a portion of said [payments] which shall be determined
by dividing the total [payments] payable by the number of writers
for such composition, unless a different division . . . is agreed up
by all such writers. . . .”
7
22. In addition to the royalties provided for in Paragraph 7
above, all monies actually earned and received from the sale,
lease, license, disposition or other turning to account of rights
in the Compositions, including all monies received in
connection with the infringement by third parties of rights in
the Compositions (“Composition Gross Receipts”) shall be
treated as follows:
(a) Publisher shall be entitled first to deduct any and all
administration and related fees from the Composition
Gross receipts. . . .;
(b) Publisher shall then deduct from Composition Gross
Receipts . . . the royalties due to the composers of the
composition in accordance with any agreement the
Publisher may have with such composers;
(c) From the balance of the Composition Gross Receipts
remaining . . . , Publisher shall be entitled to deduct and
retain amounts equal to the following direct costs actually
advanced or incurred by Publisher in realizing Composition
Gross Receipts (Composition Costs): All costs of
copyrighting the composition; . . . legal fees [relating to any
claim of copyright infringement]; Accounting fees. . . . [etc.];
(d) 30% of the balance of the Composition Gross Receipts
remaining after the deductions provided for in Paragraphs
22(a), 22(b) or 22(c) hereof . . . shall belong to Writer and be
paid to Writer . . . .”
4. The 1975 Agreement and subsequent litigation
In 1975, FOM and the band members signed a new
agreement (the 1975 Agreement) that modified the payout
formula set forth in paragraph 22 of the 1972 Agreement. The
new revenue sharing provision provided that, after the
8
deductions of certain administrative costs and fees, FOM would
be entitled to 25 percent of the Composition Gross Receipts, and
the writer would be entitled to the remaining balance. The 1975
Agreement did not alter the definition of Composition Gross
Receipts, or otherwise affect the categories of revenue that FOM
was to include when calculating the amount due under
paragraph 22. Instead, the new agreement only altered the
formula used to determine the band member’s share of
Composition Gross Receipts.
In 2009 and 2011, several band members brought multiple
lawsuits in connection with FOM’s payment of royalties under
the parties’ publishing agreements. The litigation resulted in two
settlement agreements, both of which contained language
confirming that the 1972 Agreement and 1975 Agreement
remained in effect.
C. The Current Litigation
1. Summary of plaintiffs’ claims
In October 2014, several current and former band members
(or their successors-in-interest) (collectively plaintiffs or the
band) filed the current breach of contract action against FOM,
Gerald Goldstein and numerous FOM-related entities
(collectively FOM). The complaint alleged FOM had violated the
terms of the 1972 Agreement by excluding public performance
royalties from “Composition Gross Receipts” described in
paragraph 22, denying plaintiffs their right to share in that
category of income.
The complaint alleged paragraph 22 defined Composition
Gross Receipts to include “all moneys” FOM had received from
the sale, lease or license of the compositions, which necessarily
included any performance royalties FOM had received from its
9
PRO. The complaint further alleged FOM had consistently “paid
[plaintiffs] royalties on [its share] of ‘performance income’
without fail for nearly four decades.” In December of 2013,
however, FOM “suddenly . . . , [and] without any basis for doing
so, eliminated [its] share of public performance as a category of
income for which [it] w[as] paying participant royalties . . . .”
In their prayer for relief, plaintiffs sought a declaration
that FOM’s “share of public performance revenue is to be
included in the revenue base upon which [FOM] account[s] to and
pay[s] Plaintiffs pursuant . . . to paragraph 22 of the [1972
Agreement].” They also sought contract damages for any
accounting period during which FOM had excluded its
performance royalties from Composition Gross Receipts.4
2. FOM’s motion for summary judgment
a. Summary of FOM’s motion
FOM filed a motion for summary judgment arguing that
the plain and unambiguous language of the 1972 Agreement
made clear that the publisher’s performance royalties were to be
excluded from paragraph 22’s revenue-sharing provision. In
support, FOM cited language in paragraphs 7(c) and (f) of the
agreement stating that the writer was not “entitled to share in
any . . . sums received by the Publisher from [any PRO],” and
4 Plaintiffs’ complaint included an additional claim alleging
that FOM had breached the terms of the written agreements by
failing to use the revenue sharing formula set forth in the 1975
Agreement, and instead continuing to use the formula set forth in
the 1972 Agreement. During the trial court proceedings,
however, plaintiffs voluntarily dismissed that portion of their
complaint. The parties agree that any continuing disputes they
may have regarding the 1975 Agreement are not relevant to the
issues in this appeal.
10
that “the publisher shall not be required to pay royalties earned
by reasons of the public performances of the composition.”
According to FOM, this language unambiguously “exclude[d] . . .
all public performance royalties as a source of revenue which
must be included in the formulae [set forth in paragraph 22].”
FOM further asserted that paragraph 22 could not be read
to “grant rights [to plaintiffs] that [were] specifically excluded by
Paragraph 7.” FOM explained that the revenue-sharing payment
described in paragraph 22 was to be made “in addition to”
whatever royalties were due under paragraph 7, which expressly
excluded any type of payment for performance royalties. FOM
contended that because paragraph 7 excluded performance
royalties, such royalties were necessarily excluded from
paragraph 22. According to FOM, any other interpretation would
render paragraph 7’s exclusion of performance royalties
meaningless.
FOM did not submit any extrinsic evidence in support of its
interpretation of the 1972 Agreement. Instead, it relied solely on
the text of the agreement, and declarations authenticating the
document.
b. Plaintiffs’ opposition and extrinsic evidence
Plaintiffs, however, argued the 1972 Agreement should be
interpreted to require FOM to include performance royalties in
the base amount used to calculate the revenue-sharing payment
due under paragraph 22. Plaintiffs noted that paragraph 22
specifically defined Composition Gross Receipts to include “all
moneys” FOM had received from the sale or lease of the
compositions, and contained no language excluding performance
royalties. Plaintiffs further asserted the language FOM had cited
in paragraph 7 was merely intended to clarify that FOM had no
11
duty to pay plaintiffs royalties for performance revenue because
the band was to receive all of its performance royalties directly
from its PRO. Paragraph 22, in contrast, described a separate
and distinct type of payment consisting of a share of all revenue
FOM received from the exploitation of the music, including
performance royalties.
In support of their opposition, plaintiffs submitted copies of
all the parties’ prior written agreements, and declarations from
several witnesses, including: (1) Nicholas Clainos, the attorney
who negotiated the 1972 Agreement on the band’s behalf; (2)
Michael Perlstein, an attorney specializing in the music industry;
and (3) Fred Wolinsky, a certified public accountant specializing
in music industry accounting.
i. Declaration of Nicholas Clainos
Nicholas Clainos’s declaration stated that his primary
contact at FOM during the negotiation of the 1972 Agreement
was Steven Gold, who Clainos described as a co-owner of the
company. Clainos asserted that he had told Gold the band would
drop its legal claims regarding the 1970 Agreement if FOM
agreed to enter into a new agreement that contained a provision
entitling the band to participate in “the pool of the publisher’s
share of money,” which was to include “the entire pot of money
collected by the publisher for all sources, including the
publisher’s share of public performance monies.”
According to Clainos, “[Gold] agreed to the participation
concept,” and then “prepared the 1972 [MOA] as a temporary
document and foundation for drafting a long
form. . . . Subparagraphs (a) through (d) of paragraph 3 of the
1972 [MOA] reiterate FOM’s previously existing obligation to pay
[the band royalties]. . . . [¶] . . . . Paragraph 3(e) is the language
12
that [Gold] prepared based upon our discussion and our
agreement for payment to my clients of a percentage of 30% of all
the publisher’s share of income in addition to the monies payable
solely for their [royalties].”
Clainos further stated that before the parties signed the
1972 MOA, he reaffirmed with Gold that the band’s 30 percent
participation in FOM’s share of revenue “was to include 100% of
all revenue the publisher received, including the publisher’s
public performance revenue. [Gold] acknowledged that such was
the agreement . . . .” Clainos also asserted that when drafting the
1972 Agreement, he and Gold “specifically . . . discuss[ed]” that
paragraph 22 was intended to apply to all forms of revenue that
FOM actually received, “including the publisher’s share of public
performance revenues, less only specifically delineated
deductions.”
ii. Declaration of Michael Perlstein
Michael Perlstein’s declaration stated that he had over 50
years of experience representing clients in the music industry,
and was “very familiar” with “the standard music publishing
industry practices of [the 1970s], the customs and practices in
connection with such contracts . . . and the customary usage of
terminology in such contracts.” Perlstein provided an overview of
the music publishing industry, explaining the various forms of
revenue derived from musical compositions, the origins of
performing rights organizations and how publishing agreements
had evolved during the 20th Century.
According to Perlstein, the plaintiffs’ 1970 and 1972
Agreements reflected the favorable changes that more successful
songwriters were able to impose on publishers during that era.
Specifically, Perlstein explained that the original 1970
13
Agreement merely provided the band members traditional
royalty payments, while the 1972 Agreement, negotiated after
the band had become more successful, contained a new and
additional paragraph entitling them to “receive from FOM, a
portion of the publisher’s share [of revenue].”
Perlstein further asserted that, “as used in publishing
contracts of the period, i.e., usage of trade, the word ‘all’ used
here in this new arrangement set forth in paragraph 22 meant
what it says – all monies actually earned and received by a
publisher such as FOM from all sources, including the publisher’s
share of performance royalties paid to FOM by its PRO (in this
case ASCAP). This customary usage also was customarily
defined by terms such as ‘Composition Gross Receipts’ which was
used at that time (and at present) as an all-encompassing
reference subject only to deductions specified directly in
connection with such definition.”
Perlstein contended that in his “nearly 50 years of
experience of drafting and negotiating music publishing
agreement[s] and evaluating them for [his] publishing catalogue
clients . . ., [he had] never seen a music publishing contract which
provided for songwriters to be paid a portion of the publisher’s
share of . . . income that did not include in its base amount, the
publisher’s share of public performance income.”
iii. Declaration of Frederick Wolinsky
Frederick Wolinsky’s declaration stated that he had “more
than 35 years of experience in royalty and forensic accounting in
the music industry,” and had personally participated in an audit
between the parties in 2007. Wolinsky further asserted that he
had reviewed the parties’ prior publishing agreements, and “at
least 30 years of statements issued by defendants.” Based on his
14
review of those materials, Wolinsky concluded that until May of
2014, FOM had “consistently included [its] share of . . . public
performance revenue in . . . calculat[ing] . . . and pay[ing]
Plaintiffs’ . . . ‘participant’s share’ under paragraph 22 of the
1972 [Agreement].”
Wolinksy’s declaration identified and attached as exhibits
five accounting statements that were “consistent with the [other]
statements” he had reviewed in rendering his opinion. The five
statements were from six-month accounting periods in 1982,
2007, 2011 and 2013. Three of the statements (from 1982, 2007
and 2011) did not specifically reference performance royalties;
instead the statements only showed the total amount of income
FOM had paid to the band members for each song during that
accounting period. The two other statements, which covered sixmonth
periods in 2011 and 2013, used a different format that
included a separate line item showing FOM had paid band
members a share of performance royalties during that period.
Wolinksy further stated that in May of 2014, FOM sent
plaintiffs a letter asserting that they were “not entitled to share
in the publisher’s share of performance royalties,” and that some
prior statements reflected an “overpayment in connection with
performance royalties.” The letter further explained that FOM
intended to offset those overpayments against future royalty
payments owed to plaintiffs. According to Perlstein, “[t]his
reversed [FOM’s] decades-old course of performance,” and was
“inconsistent with at least 30 years of prior statements.”
3. FOM’s reply brief
In its reply brief, FOM reasserted that “the words of the
[1972 Agreement] plainly and clearly manifest the intentions of
the parties in 1972 that the publisher’s public performance
15
royalties would not be included in the calculation of royalties to
plaintiffs.” FOM further asserted that the trial court should not
consider any of the plaintiffs’ extrinsic evidence because the 1972
Agreement was not reasonably susceptible to their proposed
interpretation. According to FOM, the extrinsic evidence was
instead admitted for an improper purpose: “to create for the
parties a contract which they did not make and . . . insert
language which one party now wishes were there.”
FOM also attacked the relevancy and credibility of the
extrinsic evidence. First, it contended the 1972 MOA was not
relevant to the interpretation of the 1972 Agreement because the
MOA had been “superseded by the 1972 Agreement.” Second,
FOM argued that Clainos’s declaration was “irrelevant” because
his statements merely asserted that he and Gold had
“discussions” about certain aspects of the 1972 Agreement
without explaining “what the parties said to one another and
what was expressly agreed between them.” FOM argued
Perlstein’s declaration was likewise of “no value” because his
customs and usage testimony conflicted with the plain language
of the 1972 Agreement, which expressly excluded any form of
payment for performance royalties.
Finally, FOM argued that Wolinksy’s “course of
performance” testimony was “irrelevant” and inadmissible
because it lacked “factual and evidentiary foundation.” FOM
explained that although Wolinsky claimed the materials he had
reviewed showed FOM had paid plaintiffs a share of performance
royalties for decades, his declaration failed to “disclose how [he
had] divined [t]his conclusion.” FOM noted that only two of the
five accounting statements Wolinsky had included with the
declaration actually referenced performance royalties, which was
16
insufficient to establish a “course of performance.” FOM further
asserted that the letter Wolinsky had referenced in his
declaration made clear that the inclusion of performance
royalties in these two statements was the result of an accounting
mistake.
FOM’s reply brief was accompanied by evidentiary
objections seeking to exclude substantial portions of the
declarations and documents plaintiffs had filed in support of their
opposition, including all of Wolinsky’s testimony related to FOM’s
past payment of performance royalties.
D. The Trial Court’s Ruling and Judgment
After a hearing, the trial court issued an order granting
FOM’s motion for summary judgment. In its analysis, the court
agreed with FOM that paragraph 7 impliedly excluded
performance royalties from the payment due under paragraph 22:
“The language of paragraph 7 . . . specifically excludes, in three
separate subparagraphs, public performance royalties from being
shared with the ‘writer,’ i.e., plaintiffs. It would be difficult to
imagine a more clear mutual intention of the parties at that time.
Nothing in the more general language of [paragraph] 22 of this
agreement modifies this exclusion.”
The trial court also agreed that plaintiffs’ extrinsic
evidence was insufficient to “avoid” the “straightforward
language in the [parties’ agreement].” The court first addressed
Wolinsky’s declaration, concluding that his statements regarding
FOM’s prior practice of paying plaintiffs a share of performance
royalties were speculative, and lacked adequate foundation. The
court explained that the accounting statements Wolinsky had
attached to his declaration showed only that FOM had paid
performance royalties to plaintiffs in 2011 and 2013, which was
17
“insufficient to establish a course of conduct ‘for decades.’” In an
accompanying order, the court sustained FOM’s evidentiary
objections to all of Wolinsky’s “course of conduct” testimony. The
court, however, overruled objections to the actual accounting
statements Wolinsky had attached to his declaration.5
The court next addressed Clainos’s declaration, concluding
that the admissible portions of his statements merely showed he
had discussed paragraph 22 with Gold, or otherwise related his
subjective beliefs as to the meaning of paragraph 22. According
to the court, Clainos’s opinions regarding the meaning of
paragraph 22, and his alleged discussions with Gold regarding
that issue, were “insufficient to prove plaintiffs’ suggested
interpretation. . . .”6
5 The court also sustained FOM’s evidentiary objections to
certain statements contained within the declarations of Clainos
and Perlstein. Except as discussed below in footnote six (see post,
p. 19, n. 6), when conducting our review, we will not consider any
of the extrinsic evidence that the trial court ruled inadmissible.
Although plaintiffs have challenged several of those evidentiary
rulings, we need not address the arguments because our
resolution of the case would be the same even if the evidence had
been admitted.
6 In its analysis of Clainos’s declaration, the court also stated
that FOM’s reply brief had “object[ed] to portions of the
. . . declaration which rely on hearsay statements . . . . of Steve
Gold.” The trial court concluded FOM’s hearsay objections were
“well-taken” because Gold was “a non-party,” and excluded all
testimony in the declaration that described statements Gold had
allegedly made to Clainos. A review of FOM’s reply brief,
however, shows that it did not actually raise hearsay objections
to Clainos’s statements about what Gold had purportedly said to
18
Finally, the court addressed Perlstein’s usage and custom
testimony. According to the court, Perlstein’s statements merely
related his “legal opinions” as to the meaning of paragraphs 7
and 22, which the court deemed to be “irrelevant.”
On September 16, 2016, the court entered judgment in
FOM’s favor.
DISCUSSION
Plaintiffs argue that the trial court erred in concluding the
1972 Agreement is not reasonably susceptible to their proposed
interpretation. Plaintiffs assert that the text of the document
and the uncontroverted extrinsic evidence demonstrate that their
proposed interpretation is not only reasonable, but also the
correct interpretation of the parties’ agreement.
A. Standard of Review and Applicable Law
1. Standard of review
him. Instead, FOM argued only that Clainos’s testimony about
his discussions with Gold was not relevant to the contract’s
meaning because Clainos failed to specify exactly what Gold had
said to him. Moreover, the evidentiary objections FOM filed with
its reply brief did not assert any hearsay objections to this
portion of Clainos’s declaration. Because the record establishes
FOM did not raise any hearsay objection to Clainos’s testimony
describing what Gold said to him, it was improper for the court to
exclude that portion of his declaration. (See Code of Civ. Proc.,
§ 437c, subd. (c) [“[i]n determining whether the papers show that
there is no triable issue as to any material fact the court shall
consider all of the evidence set forth in the papers, except that to
which objections have been made and sustained by the
court. . . .”]; Reid v. Google, Inc. (2010) 50 Cal.4th 512, 526
[section 437c requires that, when deciding a summary judgment
motion, “the trial court must consider all evidence unless an
objection to it has been raised and sustained”].)
19
“Summary judgment is appropriate ‘if all the papers
submitted show that there is no triable issue as to any material
fact and that the moving party is entitled to a judgment as a
matter of law.’ [Citation.]. . . . [¶] Our review is de novo.
[Citation.] We liberally construe the opposing party’s evidence
and resolve all doubts in favor of the opposing party. [Citation.]
We consider all evidence in the moving and opposition papers,
except that to which objections were properly sustained.” (Jacobs
v. Coldwell Banker Residential Brokerage Co. (2017) 14
Cal.App.5th 438, 443.)
2. Rules governing the interpretation of contracts
“The rules governing the role of the court in interpreting a
written instrument are well established. The interpretation of a
contract is a judicial function. [Citations.] In engaging in this
function, the trial court ‘give[s] effect to the mutual intention of
the parties as it existed’ at the time the contract was executed.
[Citation.] Ordinarily, the objective intent of the contracting
parties is a legal question determined solely by reference to the
contract’s terms. [Citation.]” (Wolf v. Walt Disney Pictures &
Television (2008) 162 Cal.App.4th 1107, 1125-1126 (Wolf).)
“The court generally may not consider extrinsic evidence of
any prior agreement or contemporaneous oral agreement to vary
or contradict the clear and unambiguous terms of a written,
integrated contract. [Citations.] Extrinsic evidence is
admissible, however, to interpret an agreement when a material
term is ambiguous. [Citations.]” (Wolf, supra, 162 Cal.App.4th
at p. 1126; see also Pacific Gas & Electric Co. v. G.W. Thomas
Drayage & Rigging (1968) 69 Cal.2d 33, 39-40 [if extrinsic
evidence reveals that apparently clear language in the contract
is, in fact, “susceptible to more than one reasonable
20
interpretation,” then extrinsic evidence may be used to determine
the contracting parties’ objective intent].)
“The interpretation of a contract involves ‘a two-step
process: First the court provisionally receives (without actually
admitting) all credible evidence concerning the parties’ intentions
to determine “ambiguity,” i.e., whether the language is
“reasonably susceptible” to the interpretation urged by a party.
If in light of the extrinsic evidence the court decides the language
is “reasonably susceptible” to the interpretation urged, the
extrinsic evidence is then admitted to aid in the second step –
interpreting the contract. [Citation.]’ [Citation.]” (Wolf v.
Superior Court (2004) 114 Cal.App.4th 1343, 1351 (Wolf II)
[citing and quoting Winet v. Price (1992) 4 Cal.App.4th 1159,
1165 (Winet)]; see also Wolf, supra, 162 Cal.App.4th at p. 1126.)
“When there is no material conflict in the extrinsic
evidence, the trial court interprets the contract as a matter of
law. [Citation.] This is true even when conflicting inferences
may be drawn from the undisputed extrinsic evidence [citations]
or that extrinsic evidence renders the contract terms susceptible
to more than one reasonable interpretation. [Citations.] If,
however, there is a conflict in the extrinsic evidence, the factual
conflict is to be resolved by the jury. [Citations.]” (Wolf, supra,
162 Cal.App.4th at pp. 1126-1127; see id. at p. 1134 [“that
extrinsic evidence may reveal an ambiguity subjecting a contract
to more than one reasonable interpretation does not mean
resolution of that ambiguity is necessarily a jury question.
Absent a conflict in the evidence, the interpretation of the
contract remains a matter of law”].)
On appeal, a “trial court’s ruling on the threshold
determination of ‘ambiguity’ (i.e., whether the proffered evidence
21
is relevant to prove a meaning to which the language is
reasonably susceptible) is a question of law, not of fact.
[Citation.] Thus[,] the threshold determination of ambiguity is
subject to independent review. [Citation.]” (Winet, supra, 4
Cal.App.4th at p. 1165)
“The second step – the ultimate construction placed upon
the ambiguous language – may call for differing standards of
review, depending upon the parol evidence used to construe the
contract.” (Winet, supra, 4 Cal.App.4th at pp. 1165-1166.)
However, where no extrinsic evidence was admitted, or the
extrinsic evidence is not conflicting, “the appellate court will
independently construe the writing.” (Id. at p. 1166; see also
Department of Forestry & Fire Protection v. Lawrence Livermore
National Security, LLC (2015) 239 Cal.App.4th 1060, 1066 [“On
appeal from a summary judgment based on a trial court’s
interpretation of a contract, we are not bound by that
interpretation . . . if there is no extrinsic evidence concerning its
interpretation, [or] . . . if there is no conflict in such evidence”].)
B. The 1972 Agreement is Reasonably Susceptible to
Plaintiffs’ Interpretation
The first question we must address is whether the 1972
Agreement “is ‘reasonably susceptible’ to the interpretation urged
by [plaintiffs.] If it is not, the case is over. [Citation.]” (Southern
Cal. Edison Co. v. Superior Court (1995) 37 Cal.App.4th 839, 847
(Southern Cal. Edison).) After provisionally receiving plaintiffs’
extrinsic evidence (except for those portions to which objections
were sustained), the trial court concluded that the revenuesharing
provision in paragraph 22 could not be reasonably
interpreted to include income FOM had received from
performance royalties. In support, the court relied on language
22
in paragraph 7 stating that plaintiffs were not entitled to share
in any sums FOM had received from a PRO for performance
royalties.
We disagree with the trial court’s threshold determination.
As the plaintiffs note, paragraph 22 of the agreement does not
contain any language indicating that performance royalties are to
be excluded from “Composition Gross Receipts,” which defines the
pool of income that is subject to plaintiffs’ revenue sharing rights.
Instead, paragraph 22 states that Composition Gross Receipts
consists of “all monies actually earned and received from the sale,
lease, license, disposition or other turning to account of rights in
the Compositions. . . .” FOM does not dispute that performance
royalties are a form of “money . . . earned” from the sale or license
of the compositions that are subject to the 1972 Agreement.
Thus, considered in isolation, the language of paragraph 22
supports the plaintiffs’ interpretation of the agreement.
FOM contends, and the trial court agreed, that despite the
absence of any exclusionary language in paragraph 22, the text of
paragraph 7 nonetheless shows the parties intended to exclude
performance royalties from paragraph 22’s revenue-sharing
provision. Paragraph 7 sets forth the “royalties” FOM must pay
plaintiffs “with respect to each composition.” The paragraph
requires FOM to pay a 50 percent royalty for most forms of
income generated from the exploitation of the composition,
including mechanical rights, synchronization rights and foreign
income, but clarifies “that the Writer shall not be entitled to
share in any sum or sums received by the Publisher from [any
PRO] which pays performance fees directly to songwriters.”
Paragraph 7(f) then reiterates that FOM shall not be required to
pay “royalties earned by reasons of the public performances of the
23
composition; said royalties being payable only by [the Writer’s
PRO].”
The language in paragraph 7 does not render plaintiffs’
proposed interpretation of the 1972 Agreement unreasonable.
Paragraph 7 and paragraph 22 address two distinct types of
payments that FOM must pay to plaintiffs: royalty payments
(paragraph 7) and a revenue-sharing payment (paragraph 22).
The language in paragraph 7 that precludes plaintiffs from
sharing in FOM’s “performance income” can be reasonably
interpreted as applying only to the type of payment described in
paragraph 7, namely royalty payments. Paragraph 7 does not
include any language stating that the exclusion of “performance
fees” extends to paragraph 22’s revenue-sharing provision.
Moreover, the first clause of paragraph 22 directs that the
revenue-sharing payment described therein is to be paid “In
addition to the royalties provided for in Paragraph 7.” The fact
that plaintiffs are not entitled to receive royalty payments on
FOM’s performance income does not necessarily preclude them
from receiving a portion of FOM’s performance income based on
the revenue-sharing payment described in paragraph 22, which is
to be paid “in addition to” whatever royalties are due under
paragraph 7.
FOM argues that plaintiffs’ proposed interpretation of
paragraph 22 would render “paragraph 7’s specific exclusion of
. . . public performance royalties . . . meaningless.” As explained
above, however, under plaintiffs’ interpretation, the exclusionary
language in paragraph 7 serves to clarify that while FOM must
pay plaintiffs a 50 percent royalty on most forms of income, the
performance income FOM receives from its PRO is not subject to
that requirement. Paragraph 22, in turn, provides that “in
24
addition to” the royalties described in paragraph 7, plaintiffs are
entitled to a certain share (30 percent after various
administrative costs and fees are deducted) of “all monies [FOM]
actually earned and received” from the sale or licensing of the
music compositions. Thus, the language in paragraph 7 and 22
are both given effect: the former provision establishes that FOM
does not have to pay plaintiffs a 50 percent royalty on the
performance income it receives from its PRO, while the latter
provision establishes that such income is nonetheless subject to
the revenue-sharing formula set forth in paragraph 22.
Plaintiffs’ proposed interpretation is also supported by
their extrinsic evidence. First, as explained in Clainos’s
declaration, prior to signing the 1972 Agreement, the parties
entered into a MOA that summarized the terms of what they had
agreed to. The MOA expressly states that the signatories agreed
that it “reflect[ed]” the terms of the agreement that were to be
included in their “formal contract[].” Paragraph 3(b) of the MOA
sets forth the royalties FOM agreed to pay plaintiffs, and
includes language clarifying that plaintiffs were to obtain “any
and all performance moneys” from ASCAP, and not from FOM.
Paragraph 3(e) of the MOA sets forth the revenue participation
payment, directing that “in addition to the foregoing, the writer
shall receive . . . 30% of [FOM’s] share of publisher income (after
deduction for collection fees, direct costs and administration
fees.)” Paragraph 3(e) has no language excluding income that
FOM received from performance royalties. Considered together,
paragraph 3(b) and 3(e) support plaintiffs’ assertion that the
parties intended FOM would not be required to pay royalties on
performance income, but would nonetheless be required to
25
include such income when calculating the revenue-sharing
payment.
Nicholas Clainos’s declaration lends further support to
plaintiffs’ interpretation. Clainos asserted that during his
negotiations of the 1972 Agreement with Steve Gold, then a coowner
of FOM, Gold specifically acknowledged that the parties
had agreed the revenue-sharing provision would apply to “100%
of all revenue the publisher received, including the publisher’s
public performance revenue.” Clainos further asserted that he
and Gold discussed that, as used in paragraph 22, the term “‘all
monies’ in the definition of ‘Composition Gross Receipts’ . . .
encompassed [FOM’s] share of public performance revenues that
were otherwise excluded in connection with the calculations
under paragraph 7.”
Michael Perlstein’s expert testimony regarding industry
usage and custom also provides support for plaintiffs’
interpretation. According to Perlstein, at the time the 1972
Agreement was negotiated, it was customary in the music
publishing industry that a provision entitling a writer to a share
of the publisher’s income would include income generated from
performance royalties. Indeed, Perlstein noted that in his 50
years of drafting, negotiating and evaluating music publishing
agreements, he had never seen a single agreement that contained
a revenue sharing provision that excluded performance royalties.
This testimony suggests plaintiffs’ proposed interpretation
accords with the industry customs and practices that were in
effect at the time the contract was negotiated.7
7 In its written order, the trial court concluded Perlstein’s
testimony amounted to his own “legal opinions as to the meaning
of paragraph 22,” and was therefore not relevant to the
26
Finally, the plaintiffs submitted accounting statements
showing that, as recently as 2011 and 2013, FOM had paid
plaintiffs a share of the income it derived from performance
royalties.8 These accounting statements provide circumstantial
evidence that FOM believed the 1972 Agreement entitled
plaintiffs to share in performance royalties, which again accords
with plaintiffs’ proposed interpretation. (See Universal Sales
interpretation of the contract. Perlstein, however, did not merely
relate his subjective interpretation of paragraph 22. Rather, he
provided expert testimony regarding the music publishing
industry’s customs and usage pertaining to revenue-sharing
provisions such as the one set forth in paragraph 22. Specifically,
Perlstein asserted that such provisions customarily applied to all
forms of publisher revenue, including performance royalties the
publisher obtains from a public rights organization. This custom
and usage evidence was relevant to aid in the interpretation of
the contract. (See Howard Entertainment, Inc. v. Kudrow (2012)
208 Cal.App.4th 1102, 1119-1121 [trial court erred in excluding
expert declaration stating that management agreements in the
entertainment industry customarily entitled managers to posttermination
compensation for any engagements that were
entered into while the agreement was in effect]; Hayter Trucking,
Inc. v. Shell Western E&P, Inc. (1993) 18 Cal.App.4th 1, 20
[“parol evidence of custom and usage is similarly admissible to
interpret the written words”].)
8 As discussed above (see ante, pp. 15-16, 18), plaintiffs’
expert in music accounting, Fred Wolinsky, submitted these
accounting statements in support of his declaration stating that
FOM had paid plaintiffs a share of performance royalties for
decades, before suddenly changing course in 2014. The trial
court sustained objections to Wolinsky’s “course of performance”
testimony, but overruled objections to the actual accounting
statements he submitted with the declaration.
27
Corp. v. California Press Mfg. Co. (1942) 20 Cal.2d 751, 761
[“when a contract is ambiguous, a construction given to it by the
acts and conduct of the parties with knowledge of its terms,
before any controversy has arisen as to its meaning, is entitled to
great weight”]; Enos v. Armstrong (1946) 75 Cal.App.2d 663, 669
[“where the terms are . . . capable of more than one reasonable
construction, the practical construction put upon the instrument
by the parties thereto, as evidenced by their conduct under it,
furnishes one of the most reliable means of arriving at its
meaning and their intention when executing it”].)
In sum, contrary to the trial court’s conclusion, the
language of the 1972 Agreement, considered in conjunction with
plaintiffs’ extrinsic evidence, demonstrates that the contract is
reasonably susceptible to the plaintiffs’ proposed interpretation.
C. Plaintiffs’ Interpretation Is More Reasonable than
the Interpretation FOM Has Proposed
Having concluded that the parties’ agreement is reasonably
susceptible to plaintiffs’ proposed interpretation, we move to the
“second step – interpreting the contract.” (Wolf II, supra, 114
Cal.App.4th at p. 1351; see also Southern Cal. Edison, supra, 37
Cal.App.4th at pp. 847-848 [“If the court decides the language is
reasonably susceptible to the interpretation urged, the court
moves to the second question: what did the parties intend the
language to mean?”].) Because the parties’ summary judgment
materials do not contain any conflicting extrinsic evidence (FOM
having elected not to submit any extrinsic evidence), we interpret
the contract as a “question of law subject to our independent
construction.” (Winet, supra, 4 Cal.App.4th at p. 1160; Wolf,
supra, 162 Cal.App.4th at p. 1134 (“Absent a conflict in the
28
evidence, the interpretation of the contract remains a matter of
law”].)
“‘The goal of contractual interpretation is to determine and
give effect to the mutual intention of the parties. [Citations.]’
[Citation.] Thus, ‘a “court’s paramount consideration . . . is the
parties’ objective intent when they entered into [the contract].”
[Citations.]’ [Citation.] ‘A contract must be so interpreted as to
give effect to the mutual intention of the parties as it existed at
the time of contracting, so far as the same is ascertainable and
lawful.’ [Citation.] ‘“If a contract is capable of two constructions
courts are bound to give such an interpretation as will make it
lawful, operative, definite, reasonable, and capable of being
carried into effect. . . ” [Citations.]’ [Citation.]” (Khavarian
Enterprises, Inc. v. Commline, Inc. (2013) 216 Cal.App.4th 310,
318.) “‘In sum, courts must give a “‘reasonable and commonsense
interpretation’” of a contract consistent with the parties’ apparent
intent.’ [Citation.]” (Department of Forestry & Fire Protection v.
Lawrence Livermore National Security, LLC (2015) 239
Cal.App.4th 1060, 1066.)
Based on the language of the parties’ agreement, and aided
by the extrinsic evidence in the record, we conclude that
plaintiffs’ interpretation of the 1972 Agreement is the most
reasonable. As explained above, paragraph 22 does not include
any language indicating that income derived from performance
royalties is to be excluded from “Composition Gross Receipts,” the
base amount used to determine plaintiffs’ revenue sharing
payment. Instead, Composition Gross Receipts is specifically
defined to include “all monies actually earned and received” in
connection with the sale and licensing of the music compositions.
Had the parties intended to exclude performance royalties from
29
Composition Gross Receipts, we expect that they would have
included language to that effect.
Paragraph 7’s exclusion of performance-based income from
FOM’s royalty payment requirements does not compel a different
result. Paragraph 7 describes the royalties FOM is required to
pay plaintiffs on various types of income, and expressly excludes
royalties on performance-based income. Paragraph 22, in
contrast, describes a separate revenue participation payment
that is to be paid “in addition to the royalties provided for in
Paragraph 7.” Unlike paragraph 7, paragraph 22 does not
exclude performance royalties from the category of income that is
subject to revenue participation. The fact that the parties
expressly excluded performance-based revenue from the royalty
payments described in paragraph 7, but did not include any such
exclusion in paragraph 22, suggests that they intended to include
performance royalties in the revenue-sharing provision.
This interpretation is consistent with the plaintiffs’
uncontroverted extrinsic evidence, including: (1) Clainos’s
statements that the FOM representative who negotiated the 1972
Agreement (Steve Gold) specifically acknowledged performance
royalties were to be included in Composition Gross Receipts; (2)
Perlstein’s testimony that it was customary in the music industry
for publishers to include performance royalties in a revenuesharing
provision like the one in paragraph 22; and (3) FOM’s
own statements from 2011 and 2013, which indicate that it had
previously paid plaintiffs a share of its performance royalties.
For the purposes of summary judgment, FOM chose not to
submit any extrinsic evidence that contradicted or otherwise
responded to plaintiffs’ extrinsic evidence. Instead, FOM relied
solely on the text of the 1972 Agreement, asserting that it
30
unambiguously excluded performance royalties from the revenuesharing
provision described in paragraph 22. For the reasons
discussed above, we reject that assertion, and conclude that the
text of the 1972 Agreement, interpreted with the aid of the
extrinsic evidence currently in the record, shows that the parties
intended that performance royalties would be included in
paragraph 22’s revenue-sharing provision. We therefore reverse
the trial court’s judgment.
Outcome: The judgment is reversed. Appellants shall recover their costs on appeal.
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