Business contracts are often long, complicated documents drafted to ensure there are no misunderstandings between the parties afterwards. However, even the best-drafted contract may contain words or terms susceptible to more than one interpretation. In some cases, these ambiguities can lead to litigation between the parties. New York courts always try to resolve ambiguities by looking "within the four corners of the contract," treating the contract as a whole and trying to ascertain what the parties practically meant to achieve.
Ellington v. EMI Music, Inc.
New York State's highest court recently addressed a case revolving an around an alleged contract ambiguity. The contract itself is more than 50 years old, and was originally signed by the great American jazz bandleader Duke Ellington and the companies responsible for publishing his music. Under the contract, dated December 1961, Ellington and his family assigned various copyrights to the publishers. In turn, the publishers were responsible for renewing the copyrights at the appropriate times and collecting royalties. Among the contract's provisions, the publishers agreed to pay 50 percent of any "net revenue actually received" from the "foreign publication" of the copyrighted works to Ellington or his heirs.
The publishers—now known as EMI—contracted foreign publication rights to sub-publishers. The sub-publishers' fees were then deducted before the remainder was split equally between EMI and the Ellington family. But a dispute arose because of the relationship between EMI and the sub-publishers. Back in the 1960s, when Ellington first signed the contract, domestic music publishers primarily relied on independent, unaffiliated foreign sub-publishers. That has changed in recent years. Now, EMI uses an affiliated foreign sub-publisher. In effect, this allows EMI to collect twice: first through affiliated sub-publisher fees, followed by another 50 percent of whatever is paid directly to EMI's domestic publishing arm.
Ellington's grandson filed suit in New York State court against EMI for breach of contract. His argument centered on two phrases in the 1961 contract. The first is that EMI must pay the heirs 50 percent of "net revenue actually received" from foreign publication. The grandson argued this should apply to any money received by an affiliated sub-publisher of EMI. The second phrase is the use of "any other affiliate" to describe the music publishers. The contract defined the second party as the publishers, "and their predecessors in interest, and any other affiliate." Ellington said this should extend to the affiliated sub-publishers currently used by EMI.
The Supreme Court, the Appellate Division, and ultimately the Court of Appeals rejected Ellington's arguments and dismissed his lawsuit. As the Court of Appeals explained in its October 23 opinion, the terms of the contract are clear and unambiguous. On the first issue, the "net revenue actually received" means only those royalties directly paid to EMI. Any amount paid to a foreign sub-publisher is excluded, even if that sub-publisher is affiliated with EMI. As for the definition of "any other affiliate," that only applied to affiliates in existence at the time the contract was signed, not those created after the fact.
The lesson here is that just because a contract is old, and the circumstances surrounding the parties may have changed, the terms are still enforceable so long as there is no genuine ambiguity. That is why before entering into any business contract, you should consult with a qualified New York business attorney who can advise you on potential traps and pitfalls on an agreement that may govern your rights and interests for decades to come.Contact our office today if you have any questions.