Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

M.S. DISTRIBUTING CO. v. WEB RECORDS

May 12, 2003

M.S. DISTRIBUTING CO., A CORPORATION, AND CONGRESS FINANCIAL CORP., A CORPORATION, PLAINTIFFS, VS. WEB RECORDS, INC., A CORPORATION, ILENE BERNS, AND BRIAN JACKSON, DEFENDANTS.


The opinion of the court was delivered by: Sidney I. Schenkier, United States Magistrate Judge

MEMORANDUM OPINION AND ORDER*fn1

On March 21, 2001, the Court granted a default judgment for the plaintiffs, MS. Distributing Co. and Congress Financial Corp. ("M.S. Distributing"), on Count I of the Complaint, awarding damages for breach of contract against the defendant, Web Records, Inc. ("Web"), in the amount of $650,311.79 (doc. #40-41). On June 13, 2001, the Court granted partial summary judgment in favor of MS. Distributing on Count II, which sought judgment against defendants Ilene Berns and Brian Jackson, the owners of Web: the Court held that Mr. Jackson and Ms. Berns signed the guarantee in their personal capacities; that M.S. Distributing was not required to exhaust remedies against Web in order to recover on the guarantee; and that the amount advanced by MS. Distributing that had not been recouped from Web and subject to the guarantee was $438,680.11 (doc. #45: 06/13/01 Mem. Op. at 20-21). The Court denied summary judgment to MS. Distributing for that amount, however, on the ground that "Mr. Jackson and Ms. Berns may assert as setoffs to the plaintiffs claim defenses that Web could have asserted, and that the disputed factual record precludes a ruling on summary judgment as to whether those defenses are meritorious" (Id., at 21).

Now pending before the Court is M.S. Distributing's second summary judgment motion, this one seeking to overrule the setoff claims and to obtain a judgment in the amount of $438,680.11 on the guarantee (doc. #77). Prior to the filing of this motion, on June 7, 2002, MS. Distributing and Mr. Jackson stipulated to the entry of judgment against Mr. Jackson on Count II (doc. #67). Thus, the pending summary judgment motion is directed solely to Ms. Berns, and presents one issue: whether Ms. Berns' factual submissions can create a genuine and material question of fact to support a setoff claim (or affirmative defense) to the $438,680.11 that otherwise would be due under the guarantee. For the reasons discussed below, the Court finds that Ms. Berns has not shown a triable issue on her setoff claims, and therefore enters summary judgment in favor of MS. Distributing and against Ms. Berns on Count II in the amount of $438,680.11.

I.

Summary judgment is proper if the record shows that there is no genuine issue as to any material fact, and that the moving parties are entitled to judgment as a matter of law. Fed.R. Civ. P. 56(c). A genuine issue for trial exists only when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party" Anderson it Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted. Id. at 249-50; see also Flip Side Productions, Inc. v. Jam Productions, Ltd., 843 F.2d 1024, 1032 (7th Cir.), cert, denied, 488 U.S. 909 (1988).

In deciding a motion for summary judgment, the Court must view all evidence in the light most favorable to the nonmoving party, Valley Liquors, Inc. v. Renfield Importers, Ltd., 822 F.2d 656, 659 (7th Cir.), cert, denied, 484 U.S. 977 (1987), and must draw all reasonable inferences in the nonmovant's favor. Santiago v. Lane, 894 F.2d 218, 221 (7th Cir. 1990). "A Court's obligation to draw all reasonable inferences in favor of a nonmoving party, however, does not require that Court to stretch existing evidence to reach conclusions or bolster arguments it could not otherwise support." Frost Nat'l Bank v. Midwest Autohaus, Inc., 241 F.3d 862, 860 (7th Cir. 2001). Mere conclusory assertions, unsupported by specific facts, are not sufficient to defeat a proper motion for summary judgment. Bragg v. Navistar Int'l Transp. Corp., 164 F.3d 373, 377 (7th Cir. 1998); First Commodity Traders, Inc. v. Heinhold Commodities, Inc., 766 F.2d 1007, 1011 (7th Cir. 1985). ("Conclusory statements in affidavits opposing a motion for summary judgment are not sufficient to raise a genuine issue of material fact").

II.

The following facts are material and without genuine dispute.

A. The Parties.

M.S. Distributing is an Illinois corporation with its principal place of business in Illinois (Pl's Rule 56.1(a)(3) Statement ("Pl's Facts"), ¶ 2). Until January 2000, plaintiff M.S. Distributing was in the business of distributing phonographic records and tapes (Id., ¶¶ 16, 20-21). Plaintiff, Congress Financial Corporation, is a Delaware corporation with its principal place of business in New York. At all relevant times, the defendant, Web, a Tennessee corporation with its principal place of business in Tennessee, was engaged in the business of acquiring and producing master recordings and manufacturing phonographic records and tapes (Id., ¶ 1). Defendants Berns and Jackson, once married, are now divorced citizens of Florida (although Ms. Berns' personal residence is in California) (Id., ¶¶ 1, 12, 24). Ms. Berns and Mr. Jackson both were shareholders of Web; in addition, Mr. Jackson served as president of Web, and Ms. Berns served as Web's chairperson and an officer of the corporation (Id., ¶ 8). After Web's inception in 1998, Ms. Berns named Glenn Palmer as Web's chief financial officer and vice president of sales; Mr. Palmer also was Web's sole remaining shareholder (Id., ¶ 9),

B. Web Records History and Ilene Burns' Involvement In It.

Ms. Berns began her career in the music business in 1967, following the death of her first husband. Upon his death, she operated the record label which he had founded — Bang Records. In 1979 or 1980, Berns sold Bang Records to CBS Records (now Sony) (Pl.'s Facts, ¶ 23). Ms. Berns, however, was "retained by CBS Records for purposes of running Bang Records for approximately three years following her sale of Bang Records to CBS Records" (Def's Resp. ¶ 25). With the exception of her retainer agreement with CBS after the sale of Bang Records, Ms. Berns was absent from the record label and/or record production parts of the industry from the early 1980s until 1998 (Pl's Facts, ¶ 27).

Between 1980 and 1998, Ms. Berns owned three music publishing companies and spent five years as the owner of a radio station in Albany, Georgia (Def's Resp. ¶ 25). Ms. Berns' publishing companies held the rights to prominent songs authored by her late husband (including "Twist and Shout"; "Piece of My Heart"; and "Hang On Sloopy"). Without having to do much production, selling or promotion, Ms. Berns' publishing companies received royalties from air play and performances of those songs, as well as income from negotiating the use of these songs in movies and commercials (Pl's Facts, — 26).

Several years after Sony bought the Bang Records label from Ms. Berns, Sony substantially stopped using the name "Bang Records." Thus, when Ms. Berns opened Web in 1998, she obtained Sony's permission for Web to use the name "Bang II Records" (Pl.'s Facts, ¶ 30). Other than Ms. Berns, none of Web's shareholders or officers had experience in the music production industry (Id., ¶ 29).

C. M.S. Distributing's History.

Before its demise between late 1999 and early 2000, M.S. Distributing had been an independent record distributor for almost 50 years (Pl's Facts, ¶ 15-16). M.S. Distributing's two corporate principals were Anthony Dalesandro and John Salstone (Id., ¶ 17). In May 1999, Messrs. Dalesandro and Salstone sold the bulk of their stock to an outside media company. However, Messrs. Dalesandro and Saistone remained with MS. Distributing to continue supervising MS. Distributing's distribution of audio and video products (Id., at ¶ 18). In late August 1999, Messrs. Salstone and Dalesandro had a falling out with the new owners of M.S. Distributing. As a result, they took an involuntary leave of absence until early October 1999 (Id., at ¶ 19).

In October 1999, Messrs. Salstone and Dalesandro re-purchased the company's stock in an effort to save M.S. Distributing from going out of business (Pl's Facts, ¶ 21). During the period between August and October 1999, several record labels severed their relationships with MS. Distributing (Id., ¶ 20). After concluding that the loss of the key record labels had irreparably wounded the audio division, MS. Distributing laid off its audio employees and ceased distributing audio products in mid-October 1999 (Id., at ¶ 21). As of that date, MS. Distributing was substantially out of the audio distribution phase of its business (Id., at ¶ 22). However, to the extent that retailers continued to request audio products, MS. Distributing continued to ship them to retailers until about January 2000 (Id., at ¶ 21).

D. The M.S. Distributing-Web Distribution Agreement.

On or about April 6, 1998, Web and M.S. Distributing entered into a Distribution Agreement (Pl.'s Facts, ¶ 37 and Ex. A thereto). The agreement that MS. Distributing drafted and presented to Web was a "standard distribution agreement form that [M.S. Distributing] signed with quite a few labels" (Def's Add'l Facts ("Def's Facts") ¶ 5). However, Web had a lawyer review the Distribution Agreement before it was signed (see 6/13/01 Mem. Op. at 6), and Web negotiated certain changes to the standard form agreement (Def's Facts ¶¶ 9, 14; Pl.'s Reply to Def's Facts ("Pl's Reply") ¶¶ 9, 14).

Pursuant to the Distribution Agreement, M.S. Distributing committed to act as Web's exclusive distributor in the United States (Pl's Facts, Ex. A, ¶ 2). M.S. Distributing was required to buy records, tapes and compact discs (which for convenience we refer to collectively as "records") from Web, at prices established in the Distribution Agreement, and then to distribute those items to sales outlets (Id., ¶ 15 and Ex. A, ¶¶ 4-7). In addition, under the Distribution Agreement, M.S. Distributing was required to make certain other payments to Web. First, the Distribution Agreement provided that upon execution of the Agreement, M.S. Distributing would advance to Web the sum of $250,000; sixty days after receiving Web's initial master recording, M.S. Distributing was required to advance to Web an additional sum of not less than $250,000 — either as an additional advance or as monies due under the Distribution Agreement for records purchased by M.S. Distributing for distribution to sales outlets) (Id., ¶¶ 65-69, and Ex. A, ¶ 8(b); Def.'s Facts ¶¶ 25; Pl.'s Reply ¶ 25). Second, the Distribution Agreement required M.S. Distributing to advance funds to pay for Web's "duplication costs," which were the costs Web incurred in having a third-party multiply (or "press") a single recording into thousands of copies for retail sale (Def's Facts ¶ 25 and Pl.'s Ex. A, ¶ 8(b)). Ms. Berns specifically negotiated this provision, which was not present in many of MS. Distributing's agreements with other labels (Def's Facts, ¶ 9). The total amount of the advance "was one of the most [M.S. Distributing] had ever advanced," based in large part upon Mr. Salstone's know ledge of Ms. Berns' abilities and Web's plans for using the funds (Def's Facts, ¶ 12).

Under the Distribution Agreement, the sales procedure was that MS. Distributing would buy the records from Web (Pl's Facts, ¶ 40), and would then distribute the records directly to retailers, or to a retailer's independent buyer or supplier for distribution to retailers (Id., at ¶ 41). The retailers would then sell the records to the consumer (Id., at ¶ 41). At the time Ms. Berns signed the Distribution Agreement, she knew that, in the record industry, retailers had an automatic right to return unsold records to a distributor (such as MS. Distributing) for credit, refund, or exchange (Id., at ¶ 46). The distributor had a similar right to return to the record label not only those records that the retailer returned, but also those records that the distributor was unable to place with the retailers (Id., at ¶ 47). M.S. Distributing's right to return records to Web appears in paragraph 9 of the Distribution Agreement — which gave MS. Distributing the right to return to Web "for credit or refund, at Distributor's option, one hundred percent (100%) of all Records." in addition, paragraph 11(a) of the Distribution Agreement states that: "[u]pon termination of this Agreement for any reason, Label [Web] will accept returns of all Records, as provided in paragraph 9 above, for credit or refund at Distributor's [M.S. Distributing's] option, and will pay Distributor for any unrecouped advances and credit balances" (Id., at ¶ 50 (citing Pl's Ex. A)). The parties agree that the provision meant that "Web would owe M.S. Distributing for any product returns falling within the scope of MS. Distributing's right to return records to Web" (Id., at 68).

The Distribution Agreement provided that upon Web's authorization of promotional or advertising expenses, MS. Distributing would make those funds available to retailers. Specifically, the Distribution Agreement provided that: "[o]n each of [Web's] first four releases, if and to the extent authorized by [Web], [M.S. Distributing] will authorize retail customers to expend a minimum of $50,000 for advertising, for which [M.S. Distributing] shall give to or reimburse its customer and [Web] shall give credit to [MS. Distributing] or reimburse [MS. Distributing] if such credit leaves [M.S. Distributing] with a credit balance" (Pl's Facts, Ex. A, ¶ 15). In other words, "Web would owe M.S. Distributing for various promotion expenses initially incurred by retailers, and then paid for by MS. Distributing" (Id., at ¶ 68). Moreover, the advertising provision only required MS. Distributing to devote such sums (to be repaid by Web) if Web authorized those expenditures before they are made (Pl's Reply, ¶ 14). The Distribution Agreement provided that Web would fully repay MS. Distributing for the advances and payment of duplication costs, pursuant to a specified formula (Id., ¶ 66 and Ex. A, ¶ 8(a)(b); Def's Facts, ¶¶ 11-12; Pl's Resp. ¶¶ 11-12). MS. Distributing would have the right to apply monies due to Web as payment for records to recoup all duplication costs, and then seventy percent of the remaining amounts due to Web as payment for records to recoup advances (6/13/01 Mem. Op. at 5 (citing Ex. A, ¶ 8(a)(b)). Web was prohibited from terminating the Distribution Agreement at any time prior to full repayment of advances and any other indebtedness, excluding duplication costs (Def's Facts, ¶ 17).

The Distribution Agreement provided for the possibility that, under this repayment formula, M.S. Distributing would not be able to fully recoup from Web the advances and duplication payments (Def's Facts, ¶ 17)). The Distribution Agreement thus provided that "Ilene Berns and Brian Jackson shall jointly and severely guarantee the repayment of any portion of such advance and duplication payments not otherwise recouped by Distributor [M.S. Distributing], and they are signing this Distribution Agreement solely to evidence this guarantee" (Id., Ex. A, ¶ 8(b)(2)). The Distribution Agreement further provided that each party would indemnify the other "against any damages ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.