United States District Court, N.D. Illinois, Eastern Division
FRANK M. SULLIVAN, III, p/k/a SURVIVOR, and JAMES PETERIK, Plaintiffs,
SONY MUSIC ENTERTAINMENT, Defendant.
MEMORANDUM OPINION AND ORDER
ROBERT M. DOW, Jr., District Judge.
Before the Court is Defendant Sony Music Entertainment's ("Defendant" or "SME's") motion to dismiss and for partial summary judgment . Plaintiffs bring this two-count breach of contract and declaratory judgment action in connection with royalty provisions in a recording agreement. Because Plaintiffs have failed to establish that there is personal jurisdiction over Defendant, the motion to dismiss is granted.
I. Factual Background
Plaintiffs are the founding members of the musical band Survivor. In 1978, the band entered into a recording agreement ("Agreement") with Scotti Brothers Records, Inc., (Defendant's predecessor-in-interest), pursuant to which the band recorded various songs, termed the "Survivor Masters." Under the Agreement, Defendant has the right to manufacture, distribute, sell, and license the Survivor Masters, and in exchange, Defendant is required to pay Survivor certain royalty rates, which depend on Defendant's particular use of a recording.
For Defendant's "sale of LP[ ] [records], singles, and prerecorded tapes, " the royalty rate to be paid to Survivor is five to ten percent of the suggested retail price. Compl. ¶ 13. The royalty as to Survivor Masters "licensed by [Defendant] for all other types of use (other than phonograph record use) on a flat-fee or royalty basis shall be an amount equal to fifty percent (50%) of the net flat fee or net royalty, as the case may be' received by or credited to [Defendant]." Id. At issue is whether licenses for digital music downloads, digital music streaming, and video streaming are for "other types of use, " and thus subject to the higher, fifty percent royalty rate.
Plaintiffs contend that licensing to third-party music download providers, such as iTunes and amazon.com (which then distribute permanent music downloads and ringtones to consumers) obligates Defendant to pay the fifty percent royalty rate. According to Plaintiffs, Defendant breached the Agreement by mischaracterizing its licenses to download providers as mere sales, which garner only five to ten percent royalty rates. Defendant counters that digital music downloads qualify as "phonograph records" under the Agreement. See Def.'s Memo. 14. As a phonograph record use, Defendant explains, digital downloads are excluded from the category of uses that qualifies for the higher royalty rate. See id.
Plaintiffs also contend that Defendant breached the Agreement by failing to pay royalties for proceeds that Defendant earned from lawsuits arising from certain entities' (such as Napster's) unauthorized download, distribution, and use of the Survivor Masters. Compl. ¶ 18. Finally, Plaintiffs contend that Defendant "improperly charged and deducted from royalties * * * certain promotion and marketing costs and expenses * * * [that] are not properly chargeable to Survivor under the Agreement." Id. at ¶ 19.
In Count One, Plaintiffs seek damages for the foregoing breaches of the Agreement, as well as the attorneys' fees that they incur in connection with the lawsuit, as provided in the Agreement. Count Two seeks a declaratory judgment stating that Defendant is obligated to pay royalties equal to fifty percent of the net proceeds received by Defendant that derive from the use of Survivor Masters by providers of digital music downloads, digital music streaming, and video streaming. Id. at ¶ 21.
Defendant provides three bases for dismissing the complaint or otherwise entering judgment in its favor: (1) the Court lacks personal jurisdiction over Defendant (a Delaware General Partnership with its principal place of business in New York) under Federal Rule of Civil Procedure 12(b)(2); (2) the complaint fails to state valid breach of contract claims under Rule 12(b)(6); and (3) summary judgment should be granted on the breach of contract claims relating to third-party settlement proceeds and the deduction of marking costs from royalty payments. Because it appears that personal jurisdiction is lacking, the Court does not address the merits of Plaintiffs' claims and instead dismisses the complaint for lack of jurisdiction.
A. Personal Jurisdiction Generally
When personal jurisdiction over a defendant is challenged by way of a motion to dismiss under Federal Rule of Civil Procedure 12(b)(2), the plaintiff bears the burden of proving that jurisdiction exists and must make a prima facie showing of jurisdiction. See Hyatt Int'l Corp. v. Coco, 302 F.3d 707, 713 (7th Cir. 2002). When a court decides a motion on the basis of paper submissions (as is the case here), a court accepts as true the plaintiff's undisputed allegations, and disputes in the evidence are resolved in favor of jurisdiction. See Purdue Research Found. v. Sanofi-Synthelabo, S.A., 338 F.3d 773, 782 (7th Cir. 2003). The Seventh Circuit has cautioned however, that "once the defendant has submitted affidavits or other evidence in opposition to the exercise of jurisdiction, the plaintiff must go beyond the pleadings and submit affirmative evidence supporting the exercise of jurisdiction." Id. at 783.
When subject matter jurisdiction is based on diversity of citizenship (as is the case here) the court may exercise personal jurisdiction over a defendant only if personal jurisdiction would be proper in an Illinois court. See Hyatt Int'l, 302 F.3d at 713. Accordingly, the district court looks to the Illinois long-arm statute, which contains a "catch-all" provision allowing Illinois state courts to assert personal jurisdiction to the maximum extent permitted by the Illinois and United States Constitutions. See 735 ILCS 5/2-209(c); see also Hyatt Int'l, 302 F.3d at 714. The Seventh Circuit has opined that "there is no operative difference between the limits imposed by the Illinois Constitution and the federal limitations on personal jurisdiction." Hyatt Int'l, 302 F.3d at 715. Accordingly, the relevant question is whether exercising personal jurisdiction over Defendant comports with federal due process protections.
Under the Due Process Clause, before an out-of-state defendant may be required to defend a case in the forum state, it must have "minimum contacts" with the state "such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.'" Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quoting Milliken v. Meyer, 311 U.S. 457, 463 (1940)). "[I]t is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws." Hanson v. Denckla, 357 U.S. 235, 253 (1958). The "purposeful availment" standard ensures that a nonresident defendant will not be ...