Clause & Effect

Record-Distribution Agreements/ Contract Breach. The U.S. District Court for the Eastern District of Michigan decided that unresolved issues of fact as to whether a distributor or a record label abandoned a record-distribution agreement precluded summary judgment for either party on breach claims by the distributor. TeeVee Toons Inc.(TVT) v. Overture Records, 05-71243. TVT and Overture Records entered into a five-year agreement under which TVT would press and distribute Overture's product. Overture then entered into an exclusive licensing agreement with artist Esham Smith and the band Natas for the artists' existing product, and an exclusive recording agreement for the artists' new product.

A notice-and-cure provision in the TVT/Overture distribution agreement stated: 'Other than a breach of the exclusivity provisions hereof, no breach of this Agreement by Overture shall be deemed material unless within 60 days after TVT learns of such breach, TVT serves written notice on Overture specifying the nature thereof and Overture fails to cure such breach, if any, within 30 days after receipt of such notice (or 10 business days in the case of a failure by Overture to pay a sum certain). No breach of this Agreement by TVT shall be deemed material unless within 60 days after Overture learns of such breach, Overture serves written notice on TVT, specifying the nature thereof and TVT fails to cure such breach, if any, within 30 days after receipt of such notice (or 10 business days in the case of a failure by TVT to pay a sum certain).'

TVT claimed that Overture ceased communicating with it in 2001 and Overture claimed the same of TVT. Meanwhile, in a dispute over payment of an advance, Overture released Natas (but not Esham) from the recording agreement. Larry Santos, the father of Overture Records owner Scott Santos, soon founded Number 6 Records and signed Natas to his label. Scott Santos brokered a deal for Koch Entertainment to distribute Number 6's product. TVT later sued Overture and Number 6 and Scott and Larry Santos. (The district court found that TVT had no breach claim against Larry Santos.)

Both plaintiff and defendants moved for summary judgment on TVT's breach claim. TVT claimed in part that Overture owed it $387,526 in unrecouped funds. But examining the TVT/Overture distribution agreement under New York law, the Michigan federal court noted: 'TVT relies on the distribution agreement that provides the obligation to pay amounts owed under the agreement is continuing and that expiration of the term of the contract does 'not discharge Overture or TVT from their obligations to pay any amounts owing' under the agreement ' TVT contends that it waited until the agreement expired and filed a Complaint alleging breach of contract, which it claims satisfies the notice and cure provision.'

TVT further claimed that the defendants had abandoned the distribution agreement. But here the court noted: 'Under New York law, where a party abandons a contract, compliance with a notice and cure provision is futile and thus excused ' The parties dispute, via deposition testimony, who abandoned the contract first by cutting off communication and failing to fulfill their obligations 'Because the court cannot resolve questions of fact on a motion for summary judgment, the Court cannot rule which party abandoned the contract, and hence, whether notice and cure would be futile.'

TVT also alleged that Scott Santos breached the distribution agreement when he helped close the Number 6 Records/Koch distribution deal. The TVT/Overture agreement contained a definitions clause that stated: 'Overture Entities' ' Overture and any other entities in the recorded music business owned or controlled, directly or indirectly, in whole or in part, by Scott Santos.' TVT and the defendants argued over whether Scott Santos had any control over Number 6 Records. But denying summary judgment on this issue, the district court noted: 'The plain meaning of the distribution agreement, when consideration is given to the circumstances and apparent purpose the parties sought to accomplish, is ambiguous as to whether it was meant to apply to future created entities controlled by Scott Santos during the term of the agreement. The language of the agreement is silent on whether it applies to all entities controlled by Scott Santos during the term, or only entities controlled by Scott Santos at the inception of the agreement. The agreement identifies entities 'owned or controlled,' which seems to refer to entities in existence. However, it is unlikely that the purpose of the agreement was to bind only the entities in existence and hypothetically to allow Scott Santos immediately after signing the agreement to create a new entity that could distribute his records through a different company.'

Record-Distribution Agreements/ Contract Breach. The U.S. District Court for the Eastern District of Michigan decided that unresolved issues of fact as to whether a distributor or a record label abandoned a record-distribution agreement precluded summary judgment for either party on breach claims by the distributor. TeeVee Toons Inc.(TVT) v. Overture Records, 05-71243. TVT and Overture Records entered into a five-year agreement under which TVT would press and distribute Overture's product. Overture then entered into an exclusive licensing agreement with artist Esham Smith and the band Natas for the artists' existing product, and an exclusive recording agreement for the artists' new product.

A notice-and-cure provision in the TVT/Overture distribution agreement stated: 'Other than a breach of the exclusivity provisions hereof, no breach of this Agreement by Overture shall be deemed material unless within 60 days after TVT learns of such breach, TVT serves written notice on Overture specifying the nature thereof and Overture fails to cure such breach, if any, within 30 days after receipt of such notice (or 10 business days in the case of a failure by Overture to pay a sum certain). No breach of this Agreement by TVT shall be deemed material unless within 60 days after Overture learns of such breach, Overture serves written notice on TVT, specifying the nature thereof and TVT fails to cure such breach, if any, within 30 days after receipt of such notice (or 10 business days in the case of a failure by TVT to pay a sum certain).'

TVT claimed that Overture ceased communicating with it in 2001 and Overture claimed the same of TVT. Meanwhile, in a dispute over payment of an advance, Overture released Natas (but not Esham) from the recording agreement. Larry Santos, the father of Overture Records owner Scott Santos, soon founded Number 6 Records and signed Natas to his label. Scott Santos brokered a deal for Koch Entertainment to distribute Number 6's product. TVT later sued Overture and Number 6 and Scott and Larry Santos. (The district court found that TVT had no breach claim against Larry Santos.)

Both plaintiff and defendants moved for summary judgment on TVT's breach claim. TVT claimed in part that Overture owed it $387,526 in unrecouped funds. But examining the TVT/Overture distribution agreement under New York law, the Michigan federal court noted: 'TVT relies on the distribution agreement that provides the obligation to pay amounts owed under the agreement is continuing and that expiration of the term of the contract does 'not discharge Overture or TVT from their obligations to pay any amounts owing' under the agreement ' TVT contends that it waited until the agreement expired and filed a Complaint alleging breach of contract, which it claims satisfies the notice and cure provision.'

TVT further claimed that the defendants had abandoned the distribution agreement. But here the court noted: 'Under New York law, where a party abandons a contract, compliance with a notice and cure provision is futile and thus excused ' The parties dispute, via deposition testimony, who abandoned the contract first by cutting off communication and failing to fulfill their obligations 'Because the court cannot resolve questions of fact on a motion for summary judgment, the Court cannot rule which party abandoned the contract, and hence, whether notice and cure would be futile.'

TVT also alleged that Scott Santos breached the distribution agreement when he helped close the Number 6 Records/Koch distribution deal. The TVT/Overture agreement contained a definitions clause that stated: 'Overture Entities' ' Overture and any other entities in the recorded music business owned or controlled, directly or indirectly, in whole or in part, by Scott Santos.' TVT and the defendants argued over whether Scott Santos had any control over Number 6 Records. But denying summary judgment on this issue, the district court noted: 'The plain meaning of the distribution agreement, when consideration is given to the circumstances and apparent purpose the parties sought to accomplish, is ambiguous as to whether it was meant to apply to future created entities controlled by Scott Santos during the term of the agreement. The language of the agreement is silent on whether it applies to all entities controlled by Scott Santos during the term, or only entities controlled by Scott Santos at the inception of the agreement. The agreement identifies entities 'owned or controlled,' which seems to refer to entities in existence. However, it is unlikely that the purpose of the agreement was to bind only the entities in existence and hypothetically to allow Scott Santos immediately after signing the agreement to create a new entity that could distribute his records through a different company.'