When the Music Stops: NY Court of Appeals Limits Meaning of ‘Affiliate’

Ellington concerned a breach of contract action filed by Paul Ellington, an heir and grandson of Edward Kennedy “Duke” Ellington, to recover royalties allegedly due under a 1961 copyright renewal agreement between Duke Ellington and Mills Music, Inc. (now EMI). In consideration of being assigned the right to renew the copyright to certain musical compositions written by Duke Ellington, the music publishers designated as the “Second Party” agreed to pay royalties to Duke Ellington and his family. The term “Second Party” included not only Mills Music, Inc. and other music publishers, but also “American Academy of Music, Inc., Gotham Music Service, Inc., and their predecessors in interest, and any other affiliate of Mills Music, Inc.”

The royalty provision required the Second Party to pay 50 percent of the net revenue actually received by the Second Party from foreign publication of the musical compositions. At the time the contract was executed, domestic music publishers typically relied on unaffiliated foreign subpublishers for foreign sales. Since the signing of the 1961 agreement, however, domestic publishers such as EMI have begun to use affiliated foreign subpublishers. During an audit of EMI, the plaintiff discovered that EMI’s affiliated foreign subpublisher retained 50 percent of the royalties generated from foreign sales of the musical compositions, while the remaining 50 percent was split equally between EMI and the Ellingtons. EMI thus collectively received 75 percent of the generated revenue. The plaintiff then sued EMI to recover royalties, claiming that EMI was diluting his share of the royalties by double-dipping into the pot of revenue through the use of affiliated foreign subpublishers.

The Court, however, found the phrase “any other affiliate” in the definition of Second Party to be unambiguous and to exclude EMI’s affiliated foreign subpublishers because the contract did not expressly include the future affiliates of Mills Music, Inc. The Court pointed to the lack of any forward-looking language and the use of present tense to reinforce its view that the parties intended to bind only affiliates that existed at the time the agreement was executed.

Ellington serves as a cautionary tale on the importance of carefully considering how terms should be defined. Under New York law, drafters should be aware that the use of a general catchall with respect to affiliates may not capture the entire universe of entities that the parties intend to bind.