Phillips v. Audio Active Ltd.

05-7017
Phillips v. Audio Active Ltd.
1 UNITED STATES COURT OF APPEALS
2 FOR THE SECOND CIRCUIT
3
4 _______________
5
6 August Term, 2006
7
8 (Argued October 26, 2006 Decided July 24, 2007)
9
10 Docket No. 05-7017-cv
11
12 _______________
13
14 PETER PHILLIPS, professionally known as Pete Rock,
15
16 Plaintiff-Appellant,
17
18 v.
19
20 AUDIO ACTIVE LIMITED, trading as Barely Breaking Even,
21 STUDIO DISTRIBUTION and SANDBOX AUTOMATIC, INC.,
22
23 Defendants-Appellees,
24
25 HIPHOPSITE.COM,
26
27 Defendant.
28
29 _______________
30
31 Before:
32 CARDAMONE, WALKER, and STRAUB,
33 Circuit Judges.
34
35 _______________
36
37 Peter Phillips, p/k/a Pete Rock, appeals the November 30,
38 2005 decision and order and the December 8, 2005 final judgment
39 of the United States District Court for the Southern District of
40 New York (Daniels, J.) dismissing his complaint against defendant
41 music companies for improper venue under Federal Rule of Civil
42 Procedure 12(b)(3).
43
44 Affirmed in part, reversed in part, and remanded.
45
46 _______________
1 _______________
2
3 PAUL A. CHIN, Law Offices of Paul A. Chin, New York, New York,
4 for Plaintiff-Appellant.
5
6 DOROTHY M. WEBER, New York, New York (Judith A. Meyers, Shukat
7 Arrow Hafer Weber & Herbsman, LLP, New York, New York, of
8 counsel), for Defendants-Appellees.
9
10 _______________
1 CARDAMONE, Circuit Judge:
2 A plaintiff may think that as the initiator of a lawsuit he
3 is the lord and master of where the litigation will be tried and
4 under what law. But if he is a party to a contract that contains
5 forum selection and choice of law clauses his view of himself as
6 ruler of all he surveys may, like an inflated balloon, suffer
7 considerable loss of altitude. Such is the situation plaintiff
8 faces in the appeal before us, where we revisit an issue last
9 addressed by us 15 years ago: what is the effect of a forum
10 selection clause on a complaint that asserts claims arising under
11 the Copyright Act? See Corcovado Music Corp. v. Hollis Music,
12 Inc., 981 F.2d 679 (2d Cir. 1993).
13 Plaintiff Peter Phillips, professionally known as Pete Rock
14 (plaintiff or appellant), is a musician who in 2002 entered into
15 a recording contract with defendant Audio Active Limited t/a
16 Barely Breaking Even (BBE), a music company. This contract gave
17 fruit to two albums in 2004 and 2005. The first album all agree
18 was governed by the recording contract and, except for Phillips'
19 contention that BBE owes him money, it appears to have been
20 produced, released and distributed according to plan. The second
21 album is the source of the principal controversy between the
22 parties.
23 In his complaint against BBE and defendants Studio
24 Distribution (Studio), Navarre Corporation (Navarre),
25 HipHopSite.com and Sandbox Automatic, Inc. (Sandbox)
26 (collectively defendants), Phillips averred that the recording
2
1 contract contemplated the first album only, and that the release
2 of the second album, over his objections, infringed his
3 copyrights in the 15 songs comprising the album. BBE and Studio
4 moved to dismiss plaintiff's complaint on the basis of a forum
5 selection clause in the contract pursuant to which the parties
6 had agreed to litigate in England any proceeding arising out of
7 the contract.
8 The United States District Court for the Southern District
9 of New York (Daniels, J.) held the forum clause governed
10 Phillips' action, including his copyright claims relating to the
11 second album. Phillips appeals from the district court's
12 November 30, 2005 decision and order and its December 8, 2005
13 judgment granting BBE and Studio's Rule 12(b)(3) motion to
14 dismiss his complaint for improper venue. Plaintiff contends
15 that the district court erred in reading the forum clause to
16 require -- rather than permit -- proceedings to be brought in
17 England, that his copyright claims did not arise out of the
18 recording contract and should have been exempted from operation
19 of the forum clause, and that the clause should be set aside
20 because its enforcement would be unreasonable.
21 We agree with the district court's interpretation of the
22 clause as mandatory and its holding that enforcement of the
23 clause would not be unreasonable and affirm the dismissal of
24 Phillips' breach of contract claim. However, plaintiff's
25 remaining claims predicated on defendants' alleged infringement
3
1 of his copyrights were improperly dismissed under the forum
2 selection clause.
3 BACKGROUND
4 A. The Recording Contract
5 Phillips entered into the recording contract with BBE in
6 September 2002 under the terms of which he agreed to provide his
7 services as a recording artist and producer to create musical
8 compositions, and BBE agreed to pay the costs of production and
9 to pay royalties to Phillips, including a $90,000 advance payable
10 in two installments.
11 The contract required Phillips to produce "no less than ten
12 (10) newly recorded and previously unreleased tracks . . . of no
13 less than sixty (60) minutes" and defined these tracks as the
14 "master recordings." The minimum number of tracks was not paired
15 with a maximum anywhere in the contract, but the master
16 recordings were later defined as the album, which was
17 provisionally entitled "Soul Survivor 2." BBE acquired the right
18 to exploit all products of Phillips' services under the contract
19 and the entire copyright in the master recordings. The final
20 paragraph of the recording contract contains a choice of law and
21 forum clause that reads: "[t]he validity[,] construction[,] and
22 effect of this agreement and any or all modifications hereof
23 shall be governed by English Law and any legal proceedings that
24 may arise out of it are to be brought in England." Phillips also
25 signed a letter agreement, which is attached to the recording
26 contract, authorizing Soul Brother Records, Inc. to offer
4
1 Phillips' services under the contract and stating that the letter
2 agreement "shall be subject to the same laws and exclusive
3 jurisdiction as the above agreement." Phillips received $55,000
4 from BBE in a first installment of his advance on royalties.
5 Pursuant to the contract, the balance of the advance was payable
6 upon delivery to BBE of the last of the master recordings.
7 B. Release of Second Album
8 In 2004 BBE released an album comprised of Phillips' musical
9 compositions entitled, as foreseen in the contract, Soul Survivor
10 2. While Phillips was preparing the songs that were released on
11 Soul Survivor 2, he composed and recorded additional music.
12 Plaintiff alleges that in 2004, BBE and Studio, a second
13 recording company, sought his permission to release the
14 additional songs, but Phillips, believing the tracks were not
15 ready for release, denied their request. BBE, Studio and
16 Navarre, a distribution company, nonetheless proceeded to release
17 a second album in August or September of 2004 containing 15
18 additional songs created by Phillips. Phillips asserts that
19 Sandbox and HipHopSite.com, both Internet-based distributors of
20 digital media, sold copies of the allegedly infringing album.
21 Plaintiff settled his claims against HipHopSite.com and these
22 were dismissed with prejudice by the district court on May 3,
23 2005.
24 C. Prior Legal Proceedings
25 Plaintiff commenced the instant action in the Southern
26 District of New York on January 26, 2005. His second amended
5
1 complaint contained five counts against the defendants. Count
2 One stated that BBE had breached the recording contract by
3 failing to pay the second installment of the royalties advance.
4 Counts Two and Three were for direct and contributory copyright
5 infringement under the Copyright Act, 17 U.S.C. § 101 et seq.,
6 and requested remedies provided by the Act. Counts Four and Five
7 asserted alternative state law claims for unjust enrichment and
8 unfair competition on the basis of defendants' exploitation of
9 the additional tracks.
10 On May 27, 2005 BBE and Studio moved to dismiss under Rules
11 12(b)(1), (3) and (6) on the grounds that the forum selection
12 clause in the recording contract required Phillips to bring his
13 suit in England. In a decision and order dated November 30, 2005
14 and a final judgment dated December 8, 2005, the trial court
15 granted BBE and Studio's motion to dismiss for improper venue
16 under Fed. R. Civ. P. 12(b)(3). The district court classified
17 the forum selection clause as mandatory rather than permissive,
18 and it held that Phillips had failed to show that enforcement of
19 the clause would be unreasonable. With respect to plaintiff's
20 copyright claims, Judge Daniels determined that any dispute
21 concerning the defendants' rights to exploit this music was
22 primarily contractual because the defendants had acquired
23 possession of the music legitimately under the contract.
24 Phillips appeals the November 30, 2005 decision and order and the
25 December 8, 2005 final judgment.
6
1 DISCUSSION
2 I Forum Selection Clause
3 A. Dismissal
4 Determining whether to dismiss a claim based on a forum
5 selection clause involves a four-part analysis. The first
6 inquiry is whether the clause was reasonably communicated to the
7 party resisting enforcement. See, e.g., D.H. Blair & Co. v.
8 Gottdiener, 462 F.3d 95, 103 (2d Cir. 2006). The second step
9 requires us to classify the clause as mandatory or permissive,
10 i.e., to decide whether the parties are required to bring any
11 dispute to the designated forum or simply permitted to do so.
12 See John Boutari & Son, Wines & Spirits, S.A. v. Attiki Imps. &
13 Distribs. Inc., 22 F.3d 51, 53 (2d Cir. 1994). Part three asks
14 whether the claims and parties involved in the suit are subject
15 to the forum selection clause. See, e.g., Roby v. Corp. of
16 Lloyd's, 996 F.2d 1353, 1358-61 (2d Cir. 1993).
17 If the forum clause was communicated to the resisting party,
18 has mandatory force and covers the claims and parties involved in
19 the dispute, it is presumptively enforceable. See id. at 1362-
20 63. The fourth, and final, step is to ascertain whether the
21 resisting party has rebutted the presumption of enforceability by
22 making a sufficiently strong showing that "enforcement would be
23 unreasonable or unjust, or that the clause was invalid for such
24 reasons as fraud or overreaching." M/S Bremen v. Zapata Off-
25 Shore Co., 407 U.S. 1, 15 (1972) (establishing federal standard
26 relating to enforcement of forum clauses applicable in admiralty
7
1 and international transactions); see Bense v. Interstate Battery
2 Sys. of Am., Inc., 683 F.2d 718, 721 (2d Cir. 1982) (applying
3 Bremen standard to contractual dispute between domestic parties
4 in non-admiralty context).
5 B. Standard of Review
6 Where the district court has relied on pleadings and
7 affidavits to grant a Rule 12(b)(3) motion to dismiss on the
8 basis of a forum selection clause, our review is de novo. See
9 Asoma Corp. v. SK Shipping Co., 467 F.3d 817, 822 (2d Cir. 2006);
10 Gulf Ins. Co. v. Glasbrenner, 417 F.3d 353, 355 (2d Cir. 2005)
11 (adopting standard applied in Rule 12(b)(2) dismissals to review
12 of Rule 12(b)(3) dismissals). In analyzing whether the plaintiff
13 has made the requisite prima facie showing that venue is proper,
14 we view all the facts in a light most favorable to plaintiff.
15 See New Moon Shipping Co. v. Man B&W Diesel AG, 121 F.3d 24, 29
16 (2d Cir. 1997). Contract interpretation as a question of law is
17 also reviewed de novo on appeal. Lee v. BSB Greenwich Mortgage
18 L.P., 267 F.3d 172, 178 (2d Cir. 2001).
19 C. Impact of Choice of Law Clause
20 In the absence of an applicable choice of law provision, it
21 is well established in this Circuit that the rule set out in M/S
22 Bremen applies to the question of enforceability of an apparently
23 governing forum selection clause, irrespective of whether a claim
24 arises under federal or state law. AVC Nederland B.V. v. Atrium
25 Inv. P'ship, 740 F.2d 148, 156 (2d Cir. 1984) (applying M/S
26 Bremen in federal question case); Bense, 683 F.2d at 720-21
8
1 (same); Jones v. Weibrecht, 901 F.2d 17, 18-19 (2d Cir. 1990)
2 (reaffirming Second Circuit rule that Bremen standard applies to
3 diversity cases).
4 Here, where the parties have agreed that the validity,
5 construction and effect of the recording contract is to be
6 governed by English law, we confront a different legal issue. In
7 analyzing a forum selection clause, what effect should we give to
8 a choice of law provision contained in the same contract?
9 Largely for the reasons we hold parties to their contractual
10 promises to litigate in a specified forum, federal courts give
11 substantial weight to choice of law provisions. See Roby, 996
12 F.2d at 1362-63 (discussing presumptive validity of choice of law
13 clauses in international transactions); State Trading Corp. of
14 India, Ltd. v. Assuranceforeningen Skuld, 921 F.2d 409, 417 (2d
15 Cir. 1990) ("[A] contractual choice of law clause generally takes
16 precedence over choice of law rules . . . ."); Richards v.
17 Lloyd's of London, 135 F.3d 1289, 1292-93 (9th Cir. 1998)
18 (extending Bremen standard to evaluation of choice of law
19 clauses). But see Advani Enters., Inc. v. Underwriters at
20 Lloyds, 140 F.3d 157, 162 (2d Cir. 1998) (incorporating choice of
21 law provision into multi-factor test to determine "points of
22 contact" between transaction and potential fora in admiralty
23 case).
24 Despite the presumptive validity of choice of law clauses,
25 our precedent indicates that federal law should be used to
26 determine whether an otherwise mandatory and applicable forum
9
1 clause is enforceable under Bremen, i.e., step four in our
2 analysis. This is because enforcement of forum clauses is an
3 essentially procedural issue, Jones, 901 F.2d at 19, while choice
4 of law provisions generally implicate only the substantive law of
5 the selected jurisdiction. See Siegelman v. Cunard White Star,
6 221 F.2d 189, 194 (2d Cir. 1955); cf. Woodling v. Garrett Corp.,
7 813 F.2d 543, 551-52 (2d Cir. 1987) (explaining New York rule
8 honoring parties' choice of law to govern substantive but not
9 procedural issues). Were it otherwise, choice of law provisions
10 selecting jurisdictions that disfavor forum clauses would put a
11 district court to the awkward choice of either ignoring the
12 parties' choice of law or invalidating their choice of forum.
13 See, e.g., Bense, 683 F.2d at 722 (declining to apply law
14 specified in contract where such application would render the
15 forum selection clause meaningless).
16 We find less to recommend the invocation of federal common
17 law to interpret the meaning and scope of a forum clause, as
18 required by parts two and three of our analysis. Little
19 discussion of the issue can be found in federal court decisions.
20 See Yavuz v. 61 MM, Ltd., 465 F.3d 418, 427 (10th Cir. 2006).
21 For example, we have turned to federal precedent to interpret
22 forum clauses, but the underlying choice of law question has been
23 left unaddressed. See, e.g., Boutari, 22 F.3d at 52-53 (applying
24 federal precedent to ascertain meaning of forum clause where
25 parties had elected Greek law); Roby, 996 F.2d at 1361 (applying
26 federal precedent to assess scope of clause where parties had
10
1 chosen English law); see also Manetti-Farrow Inc. v. Gucci Am.,
2 Inc., 858 F.2d 509, 513 (9th Cir. 1988) ("[B]ecause enforcement
3 of a forum clause necessarily entails interpretation of the
4 clause before it can be enforced, federal law also applies to
5 interpretation of forum selection clauses."). But see AVC
6 Nederland, 740 F.2d at 155 (noting that interpretation of Dutch-
7 language forum selection clause in contract among predominantly
8 Dutch principals executed in the Netherlands required application
9 of Dutch law). See generally Jacob Webb Yackee, Choice of Law
10 Considerations in the Validity & Enforcement of International
11 Forum Selection Agreements: Whose Law Applies?, 9 UCLA J. Int'l
12 L. & Foreign Aff. 43, 67 (2004) (describing practice of federal
13 courts reflexively to disregard choice of law provisions when
14 assessing forum selection clauses); Yavuz, 465 F.3d at 427
15 (same).
16 The Tenth Circuit recently discussed the novel question
17 posed by contracts containing choice of law and forum provisions.
18 Yavuz, 465 F.3d at 427-31. Reviewing a clause reading, "[t]his
19 convention is governed by the Swiss law . . . . Place of courts
20 is Fribourg," id. at 427, the court noted that before deciding
21 whether to enforce the clause, it had to resolve several
22 subsidiary questions: whether the clause was mandatory or
23 permissive, and whether it governed all of plaintiff's claims.
24 Id. Yavuz observed that the Supreme Court's guidance on forum
25 clauses did not extend to the choice of law question before it
26 (and now before us) because the meaning of each forum or
11
1 arbitration provision before the Supreme Court in M/S Bremen and
2 its progeny has never been in question. Id. at 430.
3 In light of the Supreme Court's invocation of compelling
4 reasons to uphold contractual choice of law -- like choice of
5 forum -- provisions, Yavuz held that "under federal law the
6 courts should ordinarily honor an international commercial
7 agreement's forum-selection provision as construed under the law
8 specified in the agreement's choice of law provision," id. at
9 428-30; see also Abbott Labs. v. Takeda Pharm. Co., 476 F.3d 421,
10 423 (7th Cir. 2007) ("Simplicity argues for determining the
11 validity and meaning of a forum selection clause . . . by
12 reference to the law of the jurisdiction whose law governs the
13 rest of the contract in which the clause appears.").
14 Without the benefit of briefing by the parties on this
15 issue, we cannot understand why the interpretation of a forum
16 selection clause should be singled out for application of any law
17 other than that chosen to govern the interpretation of the
18 contract as a whole. See Yavuz, 465 F.3d at 428. However, the
19 parties neither objected to the district court's citation to
20 federal precedent in its interpretation of the clause before us,
21 nor construed the clause under English law in their briefs. We
22 will assume from the parties' briefing that they do not rely on
23 any distinctive features of English law and apply general
24 contract law principles and federal precedent to discern the
25 meaning and scope of the forum clause. See Motorola Credit Corp.
26 v. Uzan, 388 F.3d 39, 61 (2d Cir. 2004) ("[T]he parties' briefs
12
1 assume that New York law controls this issue, and such implied
2 consent . . . is sufficient to establish choice of law."); John
3 Wyeth & Brother Ltd. v. CIGNA Int'l Corp., 119 F.3d 1070, 1074
4 (3d Cir. 1997) (Alito, J.) (applying general contract law
5 principles to interpret forum clause where parties made little
6 reference to English law).
7 II The Forum Clause Requires that any Covered Proceeding
8 Be Brought in England
9
10 Forum selection clauses may serve two distinct purposes.
11 Contracting parties may intend to agree on a potential situs for
12 suit so as to guarantee that at least one forum will be available
13 to hear their disputes. A so-called permissive forum clause only
14 confers jurisdiction in the designated forum, but does not deny
15 plaintiff his choice of forum, if jurisdiction there is otherwise
16 appropriate. See Boutari, 22 F.3d at 53 (reversing dismissal
17 based on permissive choice of forum clause); AVC Nederland, 740
18 F.2d at 155 ("[A] jurisdiction-conferring clause . . . provid[es]
19 a plaintiff with a guaranteed forum, [but] does not deprive him
20 of the right to sue in another having personal jurisdiction over
21 the defendant."); see also Blanco v. Banco Indus. de Venez.,
22 S.A., 997 F.2d 974, 980, 984 (2d Cir. 1993) (granting motion for
23 dismissal based on inconvenient forum despite permissive choice
24 of forum clause specifying forum chosen by plaintiff).
25 Alternatively, contracting parties may intend to agree in advance
26 on a forum where any and all of their disputes must be brought to
27 eliminate surprise of having to litigate in a hostile forum.
13
1 Roby, 996 F.2d at 1363. A mandatory forum clause is entitled to
2 the Bremen presumption of enforceability. Id.
3 Our inquiry is one of contract interpretation. Hence, our
4 initial focus is on the language of the contract. Here that
5 language provides that "any legal proceedings that may arise out
6 of [the agreement] are to be brought in England." A forum
7 selection clause is viewed as mandatory when it confers exclusive
8 jurisdiction on the designated forum or incorporates obligatory
9 venue language. See Boutari, 22 F.3d at 52-53.
10 The district court found this clause mandatory. We agree.
11 The parties' use of the phrase "are to be brought" establishes
12 England as an obligatory venue for proceedings within the scope
13 of the clause. The reference to a particular location, although
14 lacking the specificity of a particular court or city, adequately
15 distinguishes the parties' language from the clause we reviewed
16 in Boutari. 22 F.3d at 52. In that case, we construed the
17 phrase "[a]ny dispute . . . shall come within the jurisdiction of
18 the . . . Greek Courts" as a permissive clause because it dealt
19 solely with jurisdiction without indicating that such
20 jurisdiction was exclusive. Id. at 52-53. We recognized in
21 Boutari that obligatory venue language suffices to give mandatory
22 force to a forum selection clause. Id. at 53; see Seward v.
23 Devine, 888 F.2d 957, 962 (2d Cir. 1989); Docksider, Ltd. v. Sea
24 Tech., Ltd., 875 F.2d 762, 764 (9th Cir. 1989). Further, the
25 mandatory force of the words "are to be" differentiates the
26 instant clause from the language used by the parties in Blanco,
14
1 agreeing to certain fora in which their disputes "may" be
2 brought. 997 F.2d at 976, 979.
3 Our distinct treatment of jurisdiction and venue in this
4 context is clear. Because jurisdiction may be properly conferred
5 on two or more fora, the fact that the contract in Boutari
6 conferred jurisdiction on the courts of Greece did not preclude
7 the parties from commencing litigation in a court outside of
8 Greece. 22 F.3d at 52-53. However, contract language such as
9 that presented in this case -- mandating that a proceeding be
10 brought in England -- is incompatible with venue lying in New
11 York. Our finding that the clause is mandatory is buttressed by
12 the stipulation in the letter agreement attached to the recording
13 contract that the former is subject to the same exclusive
14 jurisdiction as the latter.
15 III Scope of the Forum Selection Clause In the Instant Case
16 We turn now to decide whether the language in the recording
17 contract mandating that any legal proceedings that may arise out
18 of it be brought in England encompasses Phillips' suit. However
19 important a forum selection clause is to the efficient
20 functioning of international business, see, e.g., Scherk v.
21 Alberto-Culver Co., 417 U.S. 506, 516-17 (1974), it is a creature
22 of contract. Plaintiff's choice of forum in bringing his suit in
23 federal court in New York will not be disregarded unless the
24 contract evinces agreement by the parties that his claims cannot
25 be heard there. Cf. Louis Dreyfus Negoce S.A. v. Blystad
26 Shipping & Trading Inc., 252 F.3d 218, 224 (2d Cir. 2001) (noting
15
1 that an arbitration clause, a creature of contract, does not
2 compel arbitration of a dispute that parties did not intend to
3 submit to arbitration).
4 A. Breach of Contract Claim
5 We dispose of the contract claim quickly. Phillips asserts
6 BBE breached the recording contract by failing to pay the second
7 installment on his advance on royalties due upon delivery of the
8 master recordings. He makes no argument that the forum selection
9 clause, if found mandatory and enforceable, does not apply to his
10 contract claim. The contract claim for money owed and due
11 falls squarely under the forum selection clause: the contract
12 establishes Phillips' right to receive, and BBE's duty to pay,
13 the installment and sets forth the relevant conditions.
14 B. Federal Copyright Infringement Claims
15 The effect of the forum selection clause on Phillips'
16 copyright claims presents a more difficult question. The
17 language of that clause frames our question: Do Phillips'
18 copyright claims arise out of the recording contract?
19 Plaintiff implicitly offers a straightforward argument of
20 mutual exclusivity: Because his copyright infringement claims
21 arise under the Copyright Act, they cannot arise out of the
22 contract. In T.B. Harms Co. v. Eliscu, 339 F.2d 823 (2d Cir.
23 1964) (Friendly, J.), we held a claim arises under the Copyright
24 Act and accordingly falls within the jurisdiction of the federal
25 courts if "the complaint is for a remedy expressly granted by the
26 Act, e.g., a suit for infringement or for the statutory royalties
16
1 for record reproduction." Id. at 828; see Bassett v.
2 Mashantucket Pequot Tribe, 204 F.3d 343, 349, 355 (2d Cir. 2000)
3 (reaffirming Harms test in federal jurisdiction context). Counts
4 Two and Three of Phillips' complaint allege direct and indirect
5 copyright infringement and request remedies under § 504 of the
6 Copyright Act, 17 U.S.C. § 504. We agree these claims arise
7 under the Copyright Act. Thus, federal jurisdiction is properly
8 invoked. See Kamakazi Music Corp. v. Robbins Music Corp., 684
9 F.2d 228, 229 (2d Cir. 1982) (holding defendant's interposition
10 of a contract as defense to copyright claims did not transform
11 copyright suit into breach of contract action).
12 The relevance of Harms to the present inquiry is where we
13 part from appellant. Despite its surface appeal, we are not
14 persuaded by Phillips' suggestion that a claim arising under the
15 Copyright Act for jurisdictional purposes cannot also "arise out
16 of" a contract for purposes of interpreting a forum selection
17 clause.
18 1. Federal Courts Have Repeatedly Found Statutory Claims to
19 "Arise out of" Contract in Interpreting Scope of
20 Contractual Provisions
21
22 Insofar as Harms relies on the law invoked by the plaintiff
23 to state his claims, it is anchored in doctrines that have long
24 governed our exercise of "arising under" jurisdiction under 28
25 U.S.C. § 1331, whereby "[a] suit arises under the law that
26 creates the cause of action," Am. Well Works Co. v. Layne &
27 Bowler Co., 241 U.S. 257, 260 (1916) (Holmes, J.), and federal
28 jurisdiction is proper where the complaint "is so drawn as to
17
1 seek recovery directly under the Constitution or laws of the
2 United States," Bell v. Hood, 327 U.S. 678, 681 (1946).
3 Looking to cases involving similar contractual provisions
4 and claims under other laws of the United States, we see that
5 federal courts have routinely rejected Phillips' suggestion that
6 a claim arising under a law of the United States is exempt from
7 provisions governing disputes between contracting parties. See,
8 e.g., Scherk, 417 U.S. at 508-09, 520-21 (holding that claim
9 under Securities Exchange Act was covered by arbitration clause
10 in international contract governing "any controversy or claim
11 [arising] out of this agreement or the breach thereof"); Bense,
12 683 F.2d at 720 (finding complaint brought under federal
13 antitrust law arose from distribution agreement between parties);
14 Abbott Labs., 476 F.3d at 424 (rejecting plaintiff's argument
15 that breach of fiduciary duty claim arising under Delaware tort
16 law did not arise from the contract).
17 Moreover, it is inappropriate in the present context to
18 depend solely on the legal labels used by plaintiff to decide if
19 his case arises out of the contract. When the question is one of
20 federal jurisdiction, we recognize the plaintiff is in charge of
21 deciding what law he will rely upon in bringing suit, Bell, 327
22 U.S. at 681; see Bassett, 204 F.3d at 355. It follows that legal
23 causes of action stated by plaintiff afford all the information
24 we need to decide whether "arising under" jurisdiction lies. It
25 does not follow that plaintiff is the master to decide the
26 meaning of a disputed contractual provision, which is, in effect,
18
1 what appellant suggests in asking us to hold that his claims do
2 not arise out of the recording contract based solely on the laws
3 he cites in his complaint. Phillips' proposed approach is
4 inconsistent with our refusal in Roby to allow "a party's solemn
5 promise to be defeated by artful pleading." 996 F.2d at 1360.
6 Instead, when ascertaining the applicability of a
7 contractual provision to particular claims, we examine the
8 substance of those claims, shorn of their labels. Id. at 1361.
9 This approach is consistent with the focus on factual allegations
10 rather than on the causes of action asserted when deciding
11 whether an arbitration clause applies to particular claims. See
12 JLM Indus., Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 173 (2d Cir.
13 2004); Genesco, Inc. v. T. Kakiuchi & Co., 815 F.2d 840, 846 (2d
14 Cir. 1987).
15 Because we cannot presume that the parties intended to
16 exclude all statutory claims, or even all copyright claims, from
17 the forum selection clause, we examine the substance of Phillips'
18 claims as they relate to the precise language of the clause. See
19 New Moon, 121 F.3d at 33 ("The scope of the forum selection
20 clause is a contractual question that requires the courts to
21 interpret the clause and, where ambiguous, to consider the intent
22 of the parties."); Wyeth, 119 F.3d at 1075 ("[W]hether or not a
23 forum selection clause applies depends on what the specific
24 clause at issue says.").
19
1 2. Meaning of "Arise Out Of"
2 To "arise out of" means "to originate from a specified
3 source," Webster's Third New International Dictionary 117 (1981);
4 see Coregis Ins. Co. v. Am. Health Found., Inc., 241 F.3d 123,
5 128 (2d Cir. 2001), and generally indicates a causal connection,
6 Coregis, 241 F.3d at 128.
7 We do not understand the words "arise out of" as
8 encompassing all claims that have some possible relationship with
9 the contract, including claims that may only "relate to," be
10 "associated with," or "arise in connection with" the contract.
11 See Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473
12 U.S. 614, 644 (1985) (Stevens, J., dissenting) (distinguishing
13 between scope afforded by phrases "arise" out of and "in relation
14 to"); Coregis, 241 F.3d at 128-29; Wyeth, 119 F.3d at 1074
15 (reasoning that "arising in relation to" is broader than "arising
16 under"); but cf. Roby, 996 F.2d at 1361 (declining to
17 differentiate between phrases "relating to," "in connection
18 with," and "arising from" and holding that broadly worded clause
19 encompassed non-contract claims).
20 In the same vein, we decline to ascribe to these three words
21 the expansive connotations set out in Omron Healthcare, Inc. v.
22 Maclaren Exps. Ltd., 28 F.3d 600 (7th Cir. 1994), where the
23 Seventh Circuit enforced a substantially similar forum selection
24 clause in a comparable factual scenario. In Omron, the Seventh
25 Circuit enforced a forum clause covering "all disputes arising
26 out of" a contract against the plaintiff-distributor who had
20
1 brought suit alleging that the defendant-manufacturer continued
2 to sell merchandise bearing the plaintiff's trademark after the
3 distribution agreement between the parties had terminated. Id.4 at 601-04. The Omron court reasoned that "all disputes the
5 resolution of which arguably depend on the construction of an
6 agreement 'arise out of' that agreement." Id. at 603.
7 The scope attributed by the Seventh Circuit to the words
8 "arise out of" was adopted from its interpretation of arbitration
9 clauses. Id. at 603. Like the Seventh Circuit, typically we
10 view phrases similar to "arise out of" in arbitration clauses to
11 cover collateral matters that implicate issues of contract
12 construction. See Louis Dreyfus, 252 F.3d at 224-25. Unlike the
13 court in Omron, we decline to import whole the interpretive
14 guidelines developed by the federal courts to assess the scope of
15 arbitration clauses into the present context. See Omron, 28 F.3d
16 at 603.
17 Our assessment of the scope of arbitration clauses is
18 governed by the Federal Arbitration Act, 9 U.S.C. § 1, et seq.,
19 which establishes "as a matter of federal law" that "any doubts
20 concerning the scope of arbitrable issues should be resolved in
21 favor of arbitration," including where "the problem at hand is
22 the construction of the contract itself." Mitsubishi, 473 U.S.
23 at 626. "[U]nless it may be said with positive assurance that
24 the arbitration clause is not susceptible of an interpretation
25 that covers the asserted dispute," the federal courts are obliged
26 to find a particular claim falls within the scope of an
21
1 arbitration clause. Genesco, 815 F.2d at 847 (quoting S.A.
2 Mineracao da Trindade-Samitri v. Utah Int'l, Inc., 745 F.2d 1903 (2d Cir. 1984)).
4 While we do not overlook the Supreme Court's emphatic
5 endorsement of freely negotiated and reasonable forum selection
6 clauses, see, e.g., M/S Bremen, 407 U.S. at 13-14, or our own
7 commitment to enforcing applicable forum clauses, see, e.g.,
8 Roby, 996 F.2d at 1362-63, the absence of a congressional policy
9 on forum clauses prompting us to err on the side of coverage is
10 significant.
11 Specifically, we see no reason to presume the parties meant
12 anything other than the dictionary definition of the term: to
13 originate from a specified source. Webster's Third New
14 International Dictionary 117 (1981). This meaning is especially
15 likely where parties wishing to designate a mandatory forum to
16 hear a broader category of disputes are free to do so. See,
17 e.g., M/S Bremen, 407 U.S. at 2 ("Any dispute arising must be
18 treated before the London Court of Justice."); Abbott Labs., 476
19 F.3d at 422 (designating a mandatory forum for "a dispute . . .
20 arising from, concerning or in any way related to this
21 Agreement").
22 Further, we approve of the approach outlined by the Third
23 Circuit, which highlights the language-specific nature of this
24 inquiry and discounts the precedential weight of cases that deal
25 with dissimilarly worded clauses. Wyeth, 119 F.3d at 1075
26 ("Drawing analogy to other cases is useful only to the extent
22
1 those other cases address contract language that is the same or
2 substantially similar to that at issue.").
3 3. Phillips' Federal Copyright Claims
4 With the preceding discussion on the scope of the forum
5 selection clause as background, we turn now to ascertain whether
6 Phillips' copyright claims originate from the recording contract.
7 The substance of Phillips' claims for direct and contributory
8 copyright infringement is that the defendants impermissibly
9 manufactured and distributed songs to which Phillips retained a
10 valid copyright. To succeed on a claim for direct infringement
11 under the Copyright Act, a plaintiff must show that (a) he owned
12 a valid copyright to the songs and (b) defendants copied original
13 constituent elements of these songs. See Fonar Corp. v.
14 Domenick, 105 F.3d 99, 103 (2d Cir. 1997); see also Gershwin
15 Publ'g Corp. v. Columbia Artists Mgmt., Inc., 443 F.2d 1159, 1162
16 (2d Cir. 1971) (stating that claim for contributory copyright
17 infringement requires additional element that defendants, with
18 knowledge, induce, cause or materially contribute to infringing
19 conduct of another).
20 To decide whether Phillips' copyright claims arise out of
21 the agreement, we are therefore required to determine if
22 Phillips' rights -- here predicated on valid ownership of the
23 copyrights to the 15 songs -- originate from the recording
24 contract. We hold they do not. Appellant does not rely on the
25 recording contract to establish his ownership of the relevant
26 copyrights, but on his authorship of the work, a status afforded
23
1 him as the composer who translates an idea into a fixed, tangible
2 musical expression entitled to copyright protection. Cmty. for
3 Creative Non-Violence v. Reid, 490 U.S. 730, 737 (1989); see also
4 17 U.S.C. §§ 102(a), 201(a). Plaintiff asserts, not implausibly
5 -- there is no suggestion of bad faith on his part -- that he has
6 been the rightful owner of the copyrights from the moment the
7 songs became entitled to copyright protection. The uninterrupted
8 nature of his asserted ownership distinguishes Phillips' case
9 from one in which a plaintiff-creator asserts that the relevant
10 copyrights reverted to him upon breach of contract by the
11 defendants. See Howard B. Abrams, 2 The Law of Copyright,
12 § 13:13 (2006) (distinguishing factual scenarios in which
13 plaintiffs' copyright/contract claims may arise). Indeed, if
14 Phillips were to succeed in persuading the trial court of his
15 interpretation of the recording contract, success on the merits
16 of his copyright claims would leave the recording contract
17 undisturbed.
18 In reasoning that Phillips' copyright claims do not arise
19 out of the contract because Phillips has asserted no rights or
20 duties under that contract, we find support in our decision in
21 Corcovado. 981 F.2d at 681-83. In that case, a musician entered
22 into two contracts, one with a publisher (predecessor of the
23 defendants) assigning original term copyrights to five songs, and
24 another with the plaintiff assigning the renewal term copyrights.
25 Id. at 680-81. When the plaintiff brought suit in federal court
26 alleging infringement of its renewal term copyrights, the
24
1 defendants moved to dismiss on the basis of the forum selection
2 clause contained in their separate contract with the musician.
3 Id. at 681. We affirmed the denial of the motion and held that
4 the forum clause, contained in a contract that was relevant only
5 as a defense, was without effect. Id. at 682-83.
6 Here too, while the defendants are expected to invoke the
7 contract, Phillips denies that the contract has any role or
8 relevance whatever with respect to his copyright claims. See
9 Cheever v. Acad. Chicago Ltd., 685 F. Supp. 914, 916-17 (S.D.N.Y.
10 1988); cf. Hugel v. Corp. of Lloyd's, 999 F.2d 206, 209 (7th Cir.
11 1993) ("Regardless of the duty sought to be enforced in a
12 particular cause of action, if the duty arises from the contract,
13 the forum selection clause governs the action."). Because the
14 recording contract is only relevant as a defense in this suit, we
15 cannot say that Phillips' copyright claims originate from, and
16 therefore "arise out of," the contract.
17 In Corcovado, neither party had signed the contract
18 containing the forum clause. 981 F.2d at 682. While this
19 circumstance facilitated our ruling the plaintiffs' claims were
20 wholly independent of the contract, non-signatory status is not
21 dispositive of the question of applicability of a forum clause to
22 a plaintiff's claims. See id. (citing with approval district
23 court decision that held that forum clause had no effect on
24 signatory who asserted no rights under the contract).
25 The recording contract, as already noted, mandates that any
26 legal proceedings that may arise out of it be brought in England.
25
1 We do not construe the reference to proceedings, as opposed to
2 claims, as requiring us to take into consideration the source of
3 rights or duties asserted on defense. But see Wyeth, 119 F.3d at
4 1074 (reasoning that reference to dispute in forum clause
5 implicates broader reach than reference to claim); Abbott Labs.,
6 476 F.3d at 424 (same). The clause speaks only to where a
7 proceeding is brought and thus obligates the party who brings the
8 suit (or other claims, see Karl Koch Erecting Co. v. N.Y.
9 Convention Ctr. Dev., 838 F.2d 656, 659 (2d Cir. 1988)) to decide
10 where his suit may be heard. In most cases the plaintiff cannot
11 divine, or anticipate, the defenses, or any other legal action,
12 that may be interposed by another party to the suit.
13 Moreover, the proceedings on the copyright infringement
14 claims here do not originate from the recording contract; the
15 proceedings may begin in court without any reference to the
16 contract. The only nexus between the proceedings and the
17 contract arises when the defendants raise their defenses. Given
18 this sequence of events, one cannot say that the origins of the
19 proceedings were in the recording contract.
20 Our focus on the source of the rights or duties sought to be
21 enforced by the complaining party allows us to distinguish the
22 only precedent cited by defendants where we addressed a similarly
23 worded forum clause. Bense, 683 F.2d at 720 (reviewing dismissal
24 on basis of clause covering "any suits or causes of action
25 arising directly or indirectly from this [agreement]"). In
26 Bense, the plaintiff could only show injury by demonstrating that
26
1 the defendant had breached the contract by terminating without
2 due cause. The contract containing the forum clause was the
3 source of the right, duty and injury asserted by the plaintiff
4 and we accordingly held the clause to govern his claims. Id. at
5 721-22. Such reasoning has no application to the case at hand.
6 As a consequence, we conclude Phillips' copyright claims did not
7 originate in the recording contract and are therefore not
8 governed by the forum selection clause.
9 C. Phillips' State Law Claims
10 Phillips has asserted two alternative causes of action under
11 state law for unjust enrichment and unfair competition. Both are
12 premised on defendants' allegedly improper exploitation of the 15
13 songs. For the reasons just discussed in relation to appellant's
14 federal copyright claims, his state law claims do not originate
15 from the recording contract and are exempt from operation of the
16 forum selection clause.
17 On remand, the district court should determine whether one
18 or both of Phillips state law claims are preempted by the
19 Copyright Act. See generally Briarpatch Ltd. v. Phoenix
20 Pictures, Inc., 373 F.3d 296, 304-06 (2d Cir. 2004) (setting
21 forth preemption doctrine as applied to copyright claims). We
22 think it likely, without deciding, that they are. See id. at 306
23 (finding plaintiff's unjust enrichment claim under New York law
24 preempted by Copyright Act); Computer Assocs. Int'l, Inc. v.
25 Altai, Inc., 982 F.2d 693, 716-17 (2d Cir. 1992) (stating that
26 unfair competition claims grounded solely on copying are
27
1 preempted); Warner Bros. Inc. v. Am. Broad. Cos., 720 F.2d 231,
2 247 (2d Cir. 1983) (same as Briarpatch).
3 The district court may of course properly exercise
4 supplemental jurisdiction over any state law claim surviving
5 preemption, but the decision to decline such jurisdiction
6 pursuant to 28 U.S.C. § 1367(c) is left to its discretion, see
7 Briarpatch, 373 F.3d at 308.
8 IV Enforcement of the Forum Selection Clause to Dismiss
9 Contract Claim Was Not Unreasonable
10
11 Under M/S Bremen, dismissal of Phillips' breach of contract
12 claim is proper unless appellant makes a prima facie showing that
13 the clause should be set aside. 407 U.S. at 15; see New Moon,
14 121 F.3d at 29 (holding at initial stage of litigation plaintiff
15 required to show prima facie that chosen forum is proper). We
16 have explained that a forum clause is enforceable unless (1) its
17 incorporation was the result of fraud or overreaching; (2) the
18 law to be applied in the selected forum is fundamentally unfair;
19 (3) enforcement contravenes a strong public policy of the forum
20 state; or (4) trial in the selected forum will be so difficult
21 and inconvenient that the plaintiff effectively will be deprived
22 of his day in court. Roby, 996 F.2d at 1363.
23 Phillips does not contend the first three circumstances are
24 present here. His argument, under the fourth factor, is that
25 none of his witnesses, documents, or any parties to the action
26 are located in England, rendering litigation in that country
27 impossible. Appellant also notes that defendants have proffered
28
1 no evidence that their relevant documents or witnesses are
2 located in England.
3 The gap in Phillips' reasoning is that his averments suggest
4 that litigation in England may be more costly or difficult, but
5 not that it is impossible. He has not alleged any circumstances
6 -- whether affecting him personally or a component of his case or
7 prevailing in England generally -- that would prevent him from
8 bringing suit in England. See Effron v. Sun Line Cruises, Inc.,
9 67 F.3d 7, 10-11 (2d Cir. 1995) (enforcing clause requiring U.S.
10 citizen to litigate in Greece and noting that the distance
11 between a selected forum and pertinent parties or places did not
12 render a forum inconvenient if readily accessible by air travel).
13 In addition, Phillips has not declared any of his claimed
14 hardships are other than the obvious concomitants of litigation
15 abroad, id. at 10, or were not foreseeable when he agreed to
16 litigate in England. M/S Bremen, 407 U.S. at 16.
17 In light of our holding that only Phillips' breach of
18 contract claim, which is levied against defendant BBE, is subject
19 to the forum clause, we do not address Phillips' contention that
20 the clause is inoperative against the remaining defendants who
21 were not signatories to the recording contract.
22 V Separate Treatment of Separate Claims Is Appropriate
23 Where Some But Not All Claims Are Subject to the Clause
24
25 Analyzing separately each claim asserted by Phillips, we
26 have held that Phillips' federal copyright claims and state law
27 claims are outside the ambit of the forum clause, while his
29
1 contract claim is subject to it. We address finally whether it
2 is proper in these circumstances to dismiss one claim and retain
3 jurisdiction over others.
4 We are aware that the commencement of separate proceedings
5 in two countries is a likely inconvenience to the parties and
6 that they, in choosing to refer to proceedings instead of claims,
7 may have intended to bundle all claims constituting any
8 proceeding to avoid fractured litigation. We have considered
9 that the parties' intent and continued interests may lie in
10 treating Phillips' five claims uniformly, but our twin
11 commitments to upholding forum selection clauses where these are
12 found to apply and deferring to a plaintiff's proper choice of
13 forum constrain us in the present context to treat Phillips'
14 claims separately. Cf. Dean Witter Reynolds, Inc. v. Byrd, 470
15 U.S. 213, 221 (1985) (holding that district courts are required
16 to compel arbitration of claims subject to arbitration clause
17 "even if the result is 'piecemeal' litigation").
18 CONCLUSION
19 Accordingly, for the foregoing reasons, we affirm the
20 dismissal of Phillips' breach of contract claim, reverse the
21 dismissal of his remaining claims, and remand the case to the
22 district court for further proceedings consistent with this
23 opinion.
30