Underwood v. Lastrada Entertainment Company, Ltd.

Background

William R. Underwood, a former music promoter and the sole owner of Konglather Music, claimed rights in three categories of music-related property: master vocal recordings performed by Charles and Sam Carter and others; musical arrangements identified as the Konglather Compositions; and three musical works that allegedly sampled two of those compositions.

The opinion describes several 1982 agreements concerning ownership of the recordings, royalties, and musical compositions. It also describes a 2003 settlement agreement under which Underwood received 15% of the publisher’s share of the copyright interest in the Konglather Compositions and the exclusive right to administer and exploit that interest. The settlement agreement also stated that it was the parties’ entire agreement, voided prior agreements between the signatories, and included a covenant not to sue for future claims arising after the agreement.

Underwood alleged that Lastrada, Charles Carter, and Sam Carter collected royalties that belonged to him. He asserted four types of claims: an accounting and conversion claim concerning royalties from the Konglather Compositions; breach of fiduciary duty and a constructive trust relating to royalties from the Three Works; a declaration that he co-owned the Three Works; and conversion of $149,441.28 in royalties from the Konglather Masters.

Standard and Scope of Review

The defendants moved for judgment on the pleadings and to dismiss the first amended complaint. The court applied the same general standard used for a motion to dismiss for failure to state a claim: accepting well-pleaded factual allegations as true and asking whether they plausibly showed an entitlement to relief. The court considered only the pleadings and documents attached to, incorporated into, or integral to the complaint, and therefore did not convert the motion into one for summary judgment.

Accounting for Royalties from the Konglather Compositions

The court granted dismissal of the accounting claim. Under the New York law applied by the court, an accounting claim generally requires, among other things, a relationship involving trust or confidence, money or property entrusted to the defendant, no adequate legal remedy, and, in some circumstances, a demand for an accounting that was refused.

The complaint did not allege that Underwood made the required demand for an accounting. Underwood argued in opposition that he had made a demand on Lastrada on July 17, 2015, but the court held that he could not use his opposition papers to correct a factual omission in the complaint. The court dismissed the accounting claim without reaching the defendants’ additional arguments concerning whether they had received royalty money belonging to Underwood and whether the claim was timely.

Conversion of Royalties from the Konglather Compositions

The court granted dismissal of the conversion claim concerning royalties from the Konglather Compositions. Under New York law, conversion requires a possessory right or interest in specific property and unauthorized control over or interference with that property. For money, the plaintiff must generally identify a specific, identifiable fund and an obligation to return it or treat it in a particular way.

The complaint described the property only as earnings from Underwood’s ownership interest in the compositions. It did not identify the amount converted or a discrete fund to which Underwood was entitled. The court held that identifying a 15% royalty rate was not enough. The court also held that the complaint did not adequately allege that the defendants’ possession of royalties interfered with Underwood’s rights, particularly because the 2003 settlement agreement gave Underwood the exclusive right to administer and exploit his shares.

Conversion of Royalties from the Konglather Masters

The court denied the motion to dismiss the conversion claim concerning the Konglather Masters. The complaint identified $149,441.28 in royalties received under the Atlantic Agreement as a specific amount to which Underwood claimed an immediate right of possession. Whether that amount constituted a specific, identifiable fund could not be resolved on a motion to dismiss.

The defendants argued that documents showed Underwood had already collected the royalties he claimed. The court stated that this evidence might support summary judgment for the defendants, but it was not properly considered on this motion. The court also rejected the argument that Underwood’s failure to demand return of the royalties required dismissal because a prior demand is required only when the defendant’s original possession was lawful. Underwood alleged that the defendants interfered with his initial right of possession, making their alleged possession unlawful for purposes of the motion. The court likewise declined to resolve the defendants’ argument concerning the three-year limitations period or their argument that Underwood had never possessed the royalties.

Fiduciary Duty and Constructive Trust

The court dismissed Underwood’s breach-of-fiduciary-duty claim and constructive-trust claim concerning royalties from the Three Works. A fiduciary-duty claim requires a fiduciary relationship, a knowing breach, and resulting damages. A constructive trust generally requires a fiduciary or confidential relationship, a promise, a transfer of an asset in reliance on that promise, and unjust enrichment resulting from a breach.

The court held that Underwood had not alleged a fiduciary relationship. The 2003 settlement agreement expressly disclaimed such a relationship between Underwood and the individual defendants. Underwood argued that Lastrada acted as his agent in agreements concerning sampling of the compositions, but the complaint did not plead an agency relationship. The court also noted that the settlement agreement assigned Underwood responsibility for enforcing his royalty rights rather than making Lastrada his agent.

Declaration of Ownership in the Three Works

The court dismissed Underwood’s request for a declaration that he co-owned the Three Works. The court assumed for purposes of its analysis that the Three Works contained samples from the Konglather Compositions. Even so, Underwood’s alleged co-ownership of the underlying compositions was not enough to plead a property interest in the derivative works. The court explained that co-ownership of an underlying work does not itself give ownership of a later work created without the co-owner’s involvement.

Requests to Amend and File a Supplemental Response

The court denied Underwood’s request for leave to file a second amended complaint. The proposed amendment would have added an allegation that Underwood demanded royalties from Lastrada on July 17, 2015. Underwood did not submit a proposed amended complaint with his opposition or make a properly supported motion. He also did not explain why he had omitted the demand from his earlier complaints. The court further held that amendment would be futile because the letter relied on was sent by Konglather rather than Underwood and was not addressed to Charles or Sam Carter.

The court separately denied Underwood’s request to file a supplemental response because the defendants’ reply raised no new arguments and the proposed filing repeated arguments already made in his opposition.

Disposition

The court stated that the defendants’ motion was largely granted. Except for the claim seeking conversion of $149,441.28 connected to the Konglather Masters, the claims against Lastrada, Charles Carter, and Sam Carter were dismissed. The surviving conversion claim was not resolved on the merits at this stage.