Ronald Louis Smith, Jr. v. Harry Wayne Casey , 741 F.3d 1236 ( 2014 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 13-12351
Non-Argument Calendar
________________________
D.C. Docket No. 1:12-cv-23795-UU
RONALD LOUIS SMITH, JR.,
as Personal Representative of the Estate of Ronald Louis Smith,
Plaintiff - Appellant,
versus
HARRY WAYNE CASEY,
individually,
K.C. & THE SUNSHINE BAND, INC.,
a Florida Corporation,
SUNSHINE SOUND ENTERTAINMENT, INC.,
agent of Sunshine Sound Enterprises, Inc.,
HARRICK MUSIC, INC.,
a Florida Corporation,
JIMMIE HORACE HORNE, JR.,
individually,
f.k.a. Jimmy "Bo" Horne,
JOY PRODUCTIONS, INC.,
a Florida Corporation,
Defendants - Appellees.
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________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(January 22, 2014)
Before WILSON, FAY and KRAVITCH, Circuit Judges.
KRAVITCH, Circuit Judge:
At issue in this appeal is whether the author of a musical composition who
assigned his rights in exchange for royalties may rely for purposes of standing to
sue for infringement under the Copyright Act on a registration his publisher filed.
Ronald Louis Smith, Jr., as representative for the estate of his late father, sued
several entities with whom Ronald Louis Smith, Sr. (Smith), recorded music in the
late 1970s. The estate alleged infringement of Smith’s copyright in a musical
composition entitled “Spank,” along with a claim for breach of contract and a
claim seeking a declaration of the validity of copyright transfer terminations the
estate filed under 17 U.S.C. § 203. Concluding the estate lacked statutory standing
to sue for infringement, the district court dismissed that claim and denied a motion
to amend the complaint as futile. The court then concluded the declaratory-
judgment claim was not ripe and declined to exercise supplemental jurisdiction
over the contract claim. Because the conclusion that the estate lacked statutory
standing to sue for copyright infringement was erroneous, we reverse.
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I.
When reviewing a dismissal for failure to state a claim, we accept as true the
allegations in the complaint and recite them in the light most favorable to the
plaintiff. See Starship Enters. of Atlanta, Inc. v. Coweta Cnty., Ga., 708 F.3d
1243, 1252 (11th Cir. 2013). Smith wrote “Spank,” and he later produced a
recording of the song by another artist under a Recording Agreement he had signed
with a company known at the time as Sunshine Sound Enterprises, Inc. (Sunshine
Sound). Sunshine Sound released the record in early 1979 and registered a
copyright for the sound recording. Smith’s Recording Agreement contained a
provision 1 requiring him — either with Sunshine Sound or a publishing company
of its choosing — to “execute . . . a separate Songwriter’s Agreement in respect of
each . . . Composition” recorded under the agreement “in the form of Exhibit ‘A’
atttached hereto . . . .” 2 Under that form songwriter’s contract, Smith would
“sell[], assign[], and deliver[]” his rights in a composition in exchange for
scheduled royalties for different uses of the work. In the event Smith failed to
1
The provision purports both to immediately assign the composition copyrights for apparently
unwritten copyrights to Sunshine Sound and to require Smith to later assign the same copyrights
to either Sunshine Sound or another entity by separate agreement. In the procedural posture of
this case, that provision is not so patently clear about the ownership of the “Spank” copyright as
to obviate the need for development of a factual record on the issue.
2
Although not attached to the complaint, we consider the Recording Agreement and appended
form songwriter’s contract in reviewing the complaint’s allegations because that document was
referred to in the complaint, is undisputed, and is central to the estate’s claims. See Starship
Enters of Atlanta, Inc., 708 F.3d at 1253 n.13.
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execute the form agreement for any given composition, he gave Sunshine Sound
authority “to execute said agreement in [his] name.”
With respect to “Spank,” however, neither Smith nor Sunshine Sound acting
on his behalf inked such an agreement. Nonetheless, around the same time it was
recorded, Harrick Music, Inc. (Harrick Music), a publishing company affiliated
with Sunshine Sound, registered a copyright for the musical composition “Spank,”
identifying Smith as composer and itself as claimant. Harrick Music checked a
box on the registration indicating the song was not a composition made for hire.
Smith’s relationship with Sunshine Sound deteriorated after “Spank” was
released. As a result, on September 30, 1980, he signed a Release Agreement with
the company terminating his recording contract and mutually releasing all claims
and obligations under it “except as otherwise provided” in the Release. As
relevant here, the Release stated that sound recordings made under the Recording
Agreement remained Sunshine Sound’s property and Sunshine Sound remained
“obligated to [Smith] under the royalty provisions” of the Recording Agreement.
The Release was wholly silent, however, as to where ownership rested for the
copyrights in the musical compositions embodied on the recordings. And Harrick
Music was not a party to the Release.
In the ensuing years, Smith acquiesced in Harrick Music’s administration of
the “Spank” composition copyright, but, he alleged, the company never remitted a
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cent to him. According to the complaint, neither did Sunshine Sound. Under the
Recording Agreement and the form songwriter’s agreement attached to it,
however, Smith was owed percentage royalties for the song’s exploitation in
exchange for assigning his rights to it. So on November 28, 2011, shortly before
his death, Smith through counsel sent a cease-and-desist letter revoking Harrick
Music’s authority to administer “Spank.” And Smith also filed with the Copyright
Office four Notices of Termination, seeking to formally record his revocation.
Despite this, the defendants continued to commercially exploit the composition.
So on October 18, 2012, Smith’s estate filed suit against Sunshine Sound,
Harrick Music, and several related entities seeking, among other things, damages
for infringement 3 from the November 2011 date of the cease-and-desist letter. The
estate also alleged the entities had breached agreements with Smith under the
Recording Agreement for “Spank” and an album released under his own name in
1978 entitled Party Freaks, Come On. And the estate sought a declaration of the
validity of the termination notices it had filed.
Two defendants the Smith estate named — Jimmie Horne, Jr., who
performed “Spank” on the recording Smith produced that was released under
Horne’s stage name Jimmy “Bo” Horne in 1979, and a related company called Joy
3
The estate has expressly and repeatedly disclaimed any claim for infringement of the “Spank”
sound recording. Thus, only the copyright in the underlying musical composition is at issue in
this case.
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Productions, Inc. — moved to dismiss the infringement count as to them. No other
defendant joined the motion. But, after reviewing it, the district court concluded
Smith lacked statutory standing to pursue his copyright claim and sua sponte
dismissed that count with prejudice as to all of the defendants. Harrick Music, not
Smith or his estate, had registered the copyright, the district court noted, and
registration was a necessary precondition to filing suit for infringement. The
district court also observed that Smith’s allegations were inadequate to state a
plausible claim of infringement against Horne and Joy Productions but that it was
possible the deficiency could be cured by amendment. Doing so, however, would
be “futile,” the district court decided, “given that [the estate] lacks statutory
standing to bring a copyright infringement charge at the present time.”
Smith’s estate moved the court to reconsider its dismissal of the copyright
infringement claim, contending statutory standing for the claim existed as a result
of the registration Harrick Music had filed. And the estate requested leave to file
an amended complaint, stating that it could cure any deficiency if the allegations of
infringement against Horne and Joy Productions were insufficient. The district
court denied the motion, without any word regarding the motion to amend,
presumably resting upon its previous determination that amendment would be
futile. That decision was based on the court’s finding that the Smith estate “may
not rely on Harrick’s copyright registration in order to bring a suit for copyright
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infringement.” Later, the court sua sponte dismissed the remainder of the estate’s
case, concluding the declaratory-judgment claim was unripe. Without that claim,
the court concluded, there was no independent basis for federal subject matter
jurisdiction, and the court declined to exercise supplemental jurisdiction over the
estate’s claims that Harrick Music and Sunshine Sound breached express and
implied contracts with Smith. This is the estate’s appeal.
II.
Smith’s estate argues the court was wrong to conclude it lacked statutory
standing to bring an infringement claim and, concomitantly, abused its discretion
in denying as futile leave to amend the complaint. As a result, the estate contends,
an independent federal claim exists in the case, and the court should not have
declined to exercise pendent jurisdiction over the breach-of-contract claim.
Finally, the estate urges that its declaratory judgment claim was ripe for
disposition. We agree with the first two points but disagree with the third.
We review de novo a district court’s dismissal of a complaint for failure to
state a claim upon which relief could be granted. Starship Enters. of Atlanta, Inc.,
708 F.3d at 1252. And we review for an abuse of discretion the denial of a motion
to reconsider, Region 8 Forest Service Timber Purchasers Council v. Alcock, 993
F.2d 800, 805-06 (11th Cir. 1993), reviewing any attendant question of law de
novo, see Coventry First, LLC v. McCarty, 605 F.3d 865, 869 (11th Cir. 2010).
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“To make out a prima facie case of copyright infringement, a plaintiff must
show that (1) it owns a valid copyright in the [work] and (2) defendants copied
protected elements from the [work].” Saregama India Ltd. v. Mosley, 635 F.3d
1284, 1290 (11th Cir. 2011) (alterations in original) (internal quotation marks
omitted). “The legal or beneficial owner of an exclusive right under a copyright is
entitled, subject to the requirements of section 411 [of the Copyright Act], to
institute an action for any infringement of that particular right committed while he
or she is the owner of it.” 17 U.S.C. § 501(b). Section § 411(a) provides, in turn,
that “no civil action for infringement of the copyright in any United States work
shall be instituted until preregistration or registration of the copyright claim has
been made in accordance with [the Act].” Id. at 411(a).
The 1976 Copyright Act’s legislative history explains that Congress
intended “‘beneficial owner,’” as the term is used in § 501(b), to “include . . . an
author who had parted with legal title to the copyright in exchange for percentage
royalties based on sales or license fees.” H.R. Rep. No. 94-1476, at 159 (1976).
To our knowledge, each of our sister circuits to have confronted the situation has
agreed that an author who assigns his legal rights to a work in exchange for
royalties from its exploitation has a beneficial interest sufficient for statutory
standing under § 501(b). See Batiste v. Island Records Inc., 179 F.3d 217, 219-21
& n.2 (5th Cir. 1999) (stating that composers who had assigned composition to
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music publisher in exchange for royalties could “properly assert . . . copyright
infringement claims”); Cortner v. Israel, 732 F.2d 267, 271 (2d Cir. 1984) (“When
a composer assigns copyright title to a publisher in exchange for the payment of
royalties, an equitable trust relationship is established between the two parties
which gives the composer standing to sue for infringement of that copyright.”); see
also Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1144 (9th Cir. 2003)
(“Several other circuits have held that a creator may be a beneficial owner where a
creator assigned all rights to a work, but the assignee was obligated to pay royalties
to the composer if it exploited the work.”); Moran v. London Records, Ltd., 827
F.2d 180, 183 (7th Cir. 1987) (citing “an author who assigned his work in
exchange for royalties” as “the classic example of a beneficial owner in the cases
deciding standing to sue under the 1909 Act,” and stating “Congress merely
intended to codify the existing case law”); 3 Melville B. Nimmer & David
Nimmer, Nimmer on Copyright § 12.02[D] (stating that § 501(b)’s definition of
beneficial owner “follows the law established by the courts under the 1909 Act”).
By contrast, an author who creates a work within the scope of her employment
under a “work for hire” agreement lacks statutory standing to maintain an
infringement suit. 4 See 17 U.S.C. § 201(b) (“In the case of a work made for hire,
4
Horne and Joy Productions argue “Spank” was a work created for hire. Given that the
complaint does not allege the “Spank” composition was a work for hire, the language of both the
recording and form songwriter’s agreements facially assign the copyright in exchange for
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the employer or other person for whom the work was prepared is considered the
author . . . .”); Moran, 827 F.3d at 182-83; Silvers v. Sony Pictures Entm’t, Inc.,
402 F.3d 881, 883, 886-87 (9th Cir. 2005) (en banc) (quoting the legislative history
regarding the meaning of beneficial ownership to distinguish creators of works for
hire, who have no standing to sue).
Under this definition, the estate has a sufficient ownership interest for
standing under § 501(b). According to Smith’s allegations, he never signed any
agreement giving Harrick Music the right to exploit the “Spank” copyright. But
even were we to treat Smith’s agreement to permit Sunshine Sound to execute the
form songwriter’s contract appended to his Recording Agreement as acquiescence
to its terms for the “Spank” composition, Smith still would only have assigned his
rights to the musical composition in exchange for royalties. Thus, he has at least a
beneficial interest that satisfies § 501(b) of the Copyright Act. 5
Section 501(b), however, contains a caveat. Even the beneficial owner of an
exclusive right in a copyrighted work must still demonstrate compliance with the
Act’s formalities, which require “preregistration or registration of the copyright
claim . . . in accordance with this title.” 17 U.S.C. § 411(a). Harrick Music
registered the copyright in the “Spank” composition, but Smith did not file a
royalties, and the copyright registration expressly states that it was not a work made for hire, the
issue is at least so questionable as not to be capable of decision on a motion to dismiss.
5
Because we conclude the estate has at least pleaded a sufficient beneficial interest for purposes
of statutory standing, we expressly do not reach the alternative claim that the estate has a legal
interest in the composition.
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separate registration. Because Smith had not registered the work, the district court
concluded, he lacked statutory standing. In reaching that conclusion, the district
court rejected the Smith estate’s contention that it could rely on the registration
Harrick Music had filed to satisfy § 411(a).
The district court’s construction of § 411(a) was too narrow. Harrick Music
registered a claim to copyright in the “Spank” composition, specifically identifying
Smith as the composer and informing the Copyright Office the work was not made
for hire. Nothing in § 411(a) indicates that a composer who has agreed to assign
his legal interest in a composition, along with the right to register it, in exchange
for royalties, may not rely on the registration his assignee files. Where a publisher
has registered a claim to copyright in a work not made for hire, we conclude the
beneficial owner has statutory standing to sue for infringement.
In reaching this conclusion, we are in good company. As best we can tell,
the only other court of appeals to have addressed the issue held, under nearly
identical circumstances, that composers who retained a beneficial interest could
rely upon the registration their music publisher filed. See Batiste, 179 F.3d at 220-
21 & n. 2. In that case, three brothers wrote a song entitled “Funky Soul” and then
signed an agreement transferring all rights in the composition, including “the
exclusive right to secure copyright,” to a publisher in exchange for royalties. Id. at
219. The Fifth Circuit affirmed the denial of a motion to dismiss the brothers’
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infringement claims for lack of standing, finding “no merit” in the contention that
they “could not demonstrate that they had obtained or applied to obtain a valid
copyright registration for ‘Funky Soul.’” Id. at 220-21 & n.2. Composers who
agree to assign their legal rights to a work in exchange for royalties, the court
concluded, “may properly assert their copyright infringement claims as beneficial
owners of [the publisher’s] registered copyright.” Id. at n.2; see also Morris v.
Bus. Concepts, Inc., 259 F.3d 65, 71 (2d Cir. 2001) (recognizing that magazine
publisher could have registered copyright in article that author could have relied
upon for standing to sue an alleged infringer, but finding no adequate registration
of the article individually) , abrogated in part by Reed Elsevier, Inc., v. Muchnick,
559 U.S. 154 (2010).
For standing purposes, the leading treatise on copyright explains that the
“plaintiff in court obviously need not be the same party who initially registered the
subject work.” 6 3 Nimmer on Copyright § 12.02[B][1]. Moreover, cases
interpreting the 1909 Act, which are instructive in interpreting the 1976 Act,
recognized that “a publisher could obtain and hold a copyright in its name in trust
for the true author,” and in such circumstances “the author would thus have
6
The defendants point out that this sentence is in a paragraph discussing the concept of
divisibility of rights under the 1976 Act by contrast to indivisibility of copyright under the 1909
Act and using, as examples, exclusive and nonexclusive licensees. They fail to explain,
however, why that matters and provide no explanation why the rule for registration should differ
depending upon the type of ownership interest (a distinct element of statutory standing) a
plaintiff has.
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standing to sue as a beneficial owner.” Moran, 827 F.2d at 183 (citing cases); see
Kernel Records Oy v. Mosley, 694 F.3d 1294, 1303 n.9 (11th Cir. 2012)
(“[P]recedent . . . under the 1909 Copyright Act is instructive.”), cert. denied, 133
S. Ct. 1810 (2013). Were we to ignore the weight of this authority and hold
otherwise, redundant registrations would be necessary for statutory standing
purposes every time legal and beneficial ownership of the same exclusive right
rested with two distinct parties, even if they joined together in filing suit against an
alleged infringer. Absent clear statutory language requiring it, we do not believe
Congress would have intended such a result. We hold the Smith estate has
adequately alleged facts to support its statutory standing to sue for infringement of
the “Spank” copyright.
With this conclusion, it follows that we must also reverse the district court’s
denial of the estate’s motion to amend the complaint. 7 “We will only reverse a
7
The defendants contend we may affirm on either of two alternative grounds: that the estate
failed to satisfy the local procedural rules regarding motions for leave to amend, or that the estate
failed to demonstrate that it satisfied the good-cause standard applicable to the motion. See S.
Grouts & Mortars, Inc. v. 3M Co., 575 F.3d 1235, 1241 (11th Cir. 2009). But the district court
did not decide that Smith’s estate had failed to show good cause or to comply with local rules,
and those decisions are matters of discretion. Fils v. City of Aventura, 647 F.3d 1272, 1282-83
(11th Cir. 2011) (compliance with local rules); S. Grouts & Mortars, Inc., 575 F.3d at 1240(good cause to amend). With respect to a decision we would review only for an abuse of
discretion, we generally decline to substitute our judgment about the matter when the district
court has not yet decided it and leave the decision for the district court to make in the first
instance. See McKusick v. City of Melbourne, Fla., 96 F.3d 478, 489 n.7 (11th Cir. 1996)
(explaining that, when reviewing a decision committed to the discretion of the district court that
the court did not have occasion to make, “the more appropriate course is for us to allow the
district court the opportunity to address that matter in the first instance.”). We see no reason to
depart from that sound practice in this case.
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district court’s denial of a motion to amend in instances in which the district court
has clearly abused its discretion.” Oravec v. Sunny Isles Luxury Ventures, L.C.,
527 F.3d 1218, 1231 (11th Cir. 2008) (internal quotation marks omitted). “[A]
ruling based on an error of law is an abuse of discretion.” Young v. New Process
Steel, LP, 419 F.3d 1201, 1203 (11th Cir. 2005). The district court concluded
amendment of the complaint would be futile because the estate lacked statutory
standing. Because that decision was incorrect, the court abused its discretion in
denying leave to amend the complaint.
For the same reason, the district court also abused its discretion in declining
to exercise supplemental jurisdiction over the estate’s breach-of-contract claim.
The district court dismissed the claim based on its conclusion that all “federal
claims ha[d] dropped out of [the] lawsuit . . . .” Because that premise was legally
erroneous, the court erred in dismissing the pendent state-law claim.
The district court’s conclusion regarding the estate’s declaratory-judgment
claim, however, is another matter. We review the district court’s dismissal of a
Declaratory Judgment Act claim for an abuse of discretion. Wilton v. Seven Falls
Co., 515 U.S. 277, 289-91 (1995); see also 28 U.S.C. § 2201(a) (providing that
district courts “may” exercise jurisdiction over a declaratory-judgment claim).
“Since its inception, the Declaratory Judgment Act has been understood to confer
on federal courts unique and substantial discretion in deciding whether to declare
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the rights of litigants.” Wilton, 515 U.S at 286. The act “vest[s] district courts
with discretion in the first instance[] because facts bearing on the usefulness of the
declaratory judgment remedy, and the fitness of the case for resolution, are
peculiarly within their grasp.” Id. at 289.
In this case, the district court determined the Smith estate’s claim seeking a
declaration regarding the effectiveness of its § 203 copyright termination notices
was not ripe for adjudication. The court did not abuse its discretion in declining
jurisdiction over the claim for that reason. “In deciding whether a claim is ripe for
adjudication or review, we look primarily at two considerations: 1) the fitness of
the issues for judicial decision, and 2) the hardship to the parties of withholding
court consideration.” Temple B’Nai Zion, Inc. v. City of Sunny Isles Beach, Fla.,
727 F.3d 1349, 1356 (11th Cir. 2013) (internal quotation marks omitted). As best
we can tell, the Copyright Office has neither accepted nor rejected the estate’s
termination notices. Even if we rely upon the filing receipts the estate entered into
the record, they expressly caution that the party’s filing is “merely a preliminary
step” and issuance of the receipt “do[es] not imply that any final determination has
been made in the case.” And the receipts explain that “Official action . . . can be
taken only after there has been a full examination of the claim following regular
Copyright Office procedures.” See Temple B'Nai Zion, Inc., 727 F.3d at 1356
(“[Ripeness] doctrine serves . . . [to] shield[] agencies from judicial interaction
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until an administrative decision has been formalized and its effects felt in a
concrete way by the challenging parties.” (alteration and internal quotation marks
omitted)).
Moreover, the estate expressly alleged that the earliest date the termination
notices could be legally effective is August of 2014. See 17 U.S.C. § 203(a)(3)
(stating that termination may only be “effected . . . during a period of five years
beginning at the end of thirty-five years from the date of execution of the grant; or,
if the grant covers the right of publication . . . thirty-five years from the date of
publication of the work under the grant or at the end of forty years from the date of
execution of the grant, whichever term ends earlier”). Thus, even had the
Copyright Office completed its review, the complaint’s allegations indicate that the
§ 203 notices would not presently affect the parties’ rights in the works the notices
identify. See Reno v. Catholic Soc. Servs., Inc., 509 U.S. 43, 57 (1993)
(“[D]eclaratory judgment remedies . . . are discretionary, and courts traditionally
have been reluctant to apply them to administrative determinations unless these
arise in the context of a controversy ‘ripe’ for judicial resolution, that is to say,
unless the effects . . . have been felt in a concrete way. . . .” (citations, footnote,
and internal quotation marks omitted)). The issues are, therefore, not yet fit for
adjudication and dismissal without prejudice would result in essentially no
hardship at all for either party. Under these circumstances, we conclude the district
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court did not abuse its discretion in dismissing without prejudice the estate’s claim
seeking a declaration of the validity of the estate’s termination notices as
premature. 8
III.
Accordingly, we believe the district court was within its discretion to decline
to exercise jurisdiction over the estate’s claim under the Declaratory Judgment Act
and, therefore, affirm the dismissal of that claim without prejudice. But the district
court’s conclusion that the estate lacked statutory standing to maintain a copyright
infringement claim with respect to the “Spank” composition was erroneous. For
that reason, we vacate the dismissal of that claim. Because the court denied leave
to amend and dismissed the estate’s contract claims as a consequence of this same
erroneous conclusion, we reverse those decisions as well. And we remand this
matter for further proceedings consistent with this opinion. 9
AFFIRMED in part, REVERSED in part, and REMANDED.
8
The district court also concluded that the estate mooted its claim as to two notices the
Copyright Office rejected without receipt by filing substitute notices with respect to the same
works rectifying the deficiencies the Copyright Office had identified. On appeal, the estate
makes no argument that the court’s conclusion was incorrect as to the two earlier § 203 notices
and has, therefore, abandoned any contention with respect to them. Hamilton v. Southland
Christian Sch., Inc., 680 F.3d 1316, 1318-19 (11th Cir. 2012)
9
As this appeal is not frivolous, the motion for sanctions filed by Harry Wayne Casey, Harrick
Music, Inc., K.C. & The Sunshine Band, Inc., and Sunshine Sound Entertainment, Inc., is
DENIED.
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