United States Court of Appeals,
Fifth Circuit.
No. 93-1829.
John BLOOM and Jim Atkinson, Plaintiffs-Appellants,
v.
HEARST ENTERTAINMENT, INC., et al., Defendants-Appellees.
Sept. 29, 1994.
Appeal from the United States District Court for the Northern District of Texas.
Before GOLDBERG, KING and WIENER, Circuit Judges.
GOLDBERG, Circuit Judge:
John Bloom and Jim Atkinson ("appellants") appeal from a
decision of the Northern District of Texas in a contract dispute.
Appellants brought suit in Texas State Court against appellees,
claiming that they possessed the home video rights to a motion
picture based on a book written by them. The appellees removed the
case to the federal district court. The District Court ruled
against the appellants, issuing findings of fact and conclusions of
law that held the appellants did convey the home video rights in
controversy here to the appellees. The appellants appealed the
District Court's ruling to this court. We affirm.
BACKGROUND
In 1981, the appellants wrote a book entitled Evidence of
Love. The book was an account of a well publicized axe murder of
a housewife in Wylie, Texas in 1980. On March 22, 1981, the
appellants entered into an agreement with Texas Monthly Press, Inc.
("TMP") to publish the manuscript. As part of this agreement, the
1 appellants also granted TMP broad powers with respect to Evidence
of Love, including:
The Authors hereby grant and assign solely and exclusively to the Publisher throughout the world during the full term of copyright and all renewals thereof on the terms set out in the Agreement, the book and volume publishing right in the English language throughout the world in [Evidence of Love ] along with the following rights; abridgement, syndication, radio broadcasting, television, mechanical recording and rendition, projection, Braille, microfilm, translation, dramatic, and motion pictures; ancillary commercial promotion rights, together with the right to grant licenses for the exercise of and/or to dispose of any or all of the rights granted.
The District Court found that by this agreement (hereinafter
referred to as the "Publishing Contract") the appellants granted
all the rights they had in Evidence of Love to TMP, including the
home video rights.
Evidence of Love was published in book form by TMP in 1984,
and pursuant to its agreement with the appellants, TMP engaged the
services of Triad Artists, Inc. ("Triad") to sell the movie rights.
In June 1987, Triad entered into negotiations with Hearst
Entertainment, Inc. and Phoenix Entertainment Group, which is King
Phoenix Entertainment's predecessor-in-interest (hereinafter
referred to collectively as "Phoenix"). The two principal
negotiators were Caitlin Buchman, representing Triad, and Marvin
Katz, representing Phoenix.
Buchman and Katz reached an agreement on the movie rights
which is the focus of the present controversy. This agreement was
an option contract consisting of eleven sections. Section 1 of the
contract states, in relevant part:
[Phoenix] shall be granted, upon execution hereof, an exclusive three month free option to acquire exclusive
2 worldwide motion picture and television rights in and to [Evidence of Love ]. (emphasis provided).
The remainder of this clause ("granting clause") details how the
option was to be extended and the option price. In section 6 of
the contract ("reservation clause") Triad reserved certain rights
on TMP's behalf. Specifically, the contract stated that TMP
reserved all rights not expressly granted, and reserved the
publication, live stage, and radio rights. Finally, section 11 of
the contract provided that all disputes arising under the contract
would be settled in accordance with New York law.
The appellants and their agent, Vickie Eisenberg, were aware
of the negotiations between TMP and Phoenix. Although the
appellants were not parties to the negotiations between TMP and
Phoenix, drafts of the contract were made available to the
appellants, and they expressed no reservations concerning the
agreement. In November 1989, Phoenix and TMP reached an agreement
on an option contract to buy the movie rights to Evidence of Love.
Phoenix exercised its option to the movie rights for Evidence of
Love in January 1990. By exercising its option with TMP, Phoenix
was vested of all the rights under the option contract (hereinafter
referred to as the "Movie Rights Contract").
The same month that Phoenix and TMP executed the Movie Rights
Contract, the appellant's attorney sent TMP a letter stating that
the appellants were displeased with the terms of the sale of the
movie rights to Evidence of Love. The appellants were upset that
they were not given a creative role in the making of the motion
picture, were not chosen to write the screenplay, and did not have
3 a voice in choosing the director. The appellants threatened to sue
TMP for the alleged mishandling of the agreement with Phoenix, and
demanded that TMP reconvey to the appellants whatever rights TMP
retained in Evidence of Love under the Movie Rights Contract. In
response to these demands, TMP sued the appellants in Texas State
Court for a declaratory judgment regarding the parties rights under
the Publishing Contract between the appellants and TMP. Appellants
and TMP settled this suit in February 1990, with TMP assigning
whatever rights it retained in Evidence of Love under the Movie
Rights Contract to the appellants. Under this settlement the
appellants stepped into TMP's shoes with regard to TMP's rights in
Evidence of Love and its relationship to Phoenix.
Meanwhile, Phoenix entered into an agreement with the CBS
Television Network to air the movie adaptation of Evidence of Love,
entitled "Killing in a Small Town." The program aired on May 22,
1990. In June 1990, the appellants read a newspaper article
stating that "Killing in a Small Town" was going to be theatrically
released abroad that summer. In reaction to this article, the
appellants contacted Phoenix, seeking the additional funds they
would be entitled to if the movie were to be released abroad.
Phoenix claimed that the article was mistaken and that there was to
be no foreign release, but rather that Phoenix had licensed the
motion picture to international home video distributors and
television broadcasters. The appellants informed Phoenix of their
belief that the Movie Rights Contract did not grant Phoenix any
rights to the home video of Evidence of Love. Phoenix disagreed
4 with the appellants and asserted that it did have home video rights
under the Movie Rights Contract. A few months later the appellants
instituted an action against Phoenix in Texas State Court. Phoenix
promptly removed the matter to the federal district court, and the
appellants' appeal from the District Court's verdict is before us
today.
DISCUSSION
The appellants' first assertion is that the District Court
erred in holding that the granting clause of the Movie Rights
Contract was ambiguous. They argue that the language of the
granting clause is clear: that "exclusive worldwide motion picture
and television rights" means precisely what it says, and since
there is no mention of home video rights, then those rights were
obviously not granted. Conversely, Phoenix contends that the
granting clause is ambiguous in regard to whether or not it conveys
the video rights.
Determining whether a contract is ambiguous is a question of
law. Walk-In Medical Centers, Inc. v. Breuer Capital Corp., 818
F.2d 260, 263 (2nd Cir.1987); Curry Road Ltd. v. K Mart Corp., 893
F.2d 509, 511 (2nd Cir.1990). A term is ambiguous if it is
susceptible to "more than one meaning when viewed objectively by a
reasonably intelligent person who has examined the context of the
entire integrated agreement and who is cognizant of the customs,
practices, usages and terminology as generally understood in the
particular trade or business." Walk-In Medical, 818 F.2d at 263
(quoting Eskimo Pie Corp. v. Whitelawn Dairies, Inc., 284 F.Supp.
5 987, 994 (S.D.N.Y.1968)). Also, a determination of ambiguity
should be made solely in reference to the language of the contract;
extrinsic evidence should only be admitted after the contract is
found to be ambiguous. Curry Road Ltd., 893 F.2d at 511. The
Uniform Commercial Code, as adopted in New York, makes an exception
to the exclusion of extrinsic evidence for the purposes of proving
that a contract term is not ambiguous in light of usage of trade,
course of dealing or course of performance. N.Y.U.C.C. § 2-202,
Official Comment 1. Generally, determining whether a contract term
is ambiguous is a question of law and would call for a de novo
review of the District Court's determination. Paragon Resources,
Inc. v. Nat. Fuel Gas Distribution, 695 F.2d 991, 995 (5th
Cir.1983) (applying New York law). However, it is not clear
whether the admission of extrinsic evidence of usage of trade to
determine ambiguity in a contract makes it a factual determination,
a mixed question of law and fact, or whether it remains a purely
legal question. We shall wrangle with this question further below,
but for now it will suffice to say that we agree with the District
Court in holding that the granting clause in question is ambiguous.
In order to find that a contract is ambiguous, in whole or in
part, we must believe that it can be construed to mean two
different things. The appellant's assertion that "worldwide motion
picture and television rights" excludes video rights is arguably a
reasonable construction of the clause. Appellants argue that
"motion pictures" could refer exclusively to movies made for
theatrical release, and "television" could just mean made-for-TV
6 movies, and never the "twain shall meet. However, Phoenix's
contention that the granting clause does include video rights is
also a reasonable construction. At its most basic level, what is
a video, if not a motion picture displayed on a television set?
This observation is also supported by the precise definitions of
the relevant terms. Webster's Ninth New Collegiate Dictionary
defines video as follows: "a recording of a motion picture or
television program for playing through a television set."
(emphasis provided). It is not unreasonable to conclude that video
rights lie at the intersection of motion picture and television
rights, and hence, a grant of motion picture and television rights
could include video rights as well.
The appellants argue that the industry custom and usage of
the contract terms should, as a matter of law, control our
determination of what is ambiguous. See, Personal Preference
Video, Inc. v. Home Box Office, Inc., 986 F.2d 110, 114 (5th
Cir.1993) (applying New York law). We agree that industry custom
and usage is a determinative factor in discovering whether a
contract term is ambiguous. However, the appellants argue further
that given the importance of evidence of industry custom and usage,
the District Court made a reversible error by discounting the
testimony of the appellant's expert, Paul Almond. The issue the
appellants pose is simply one of what standard of review to apply
to a lower court's determination that a contract term is ambiguous
after considering evidence of usage of trade. Generally, whether
a contract is ambiguous is a question of law, and if it is
7 ambiguous and extrinsic evidence is allowed, then the determination
becomes a factual inquiry. Each particular inquiry has its own,
well defined, standard of review. However, where extrinsic
evidence of industry custom and usage is admitted to determine
whether a contract term is ambiguous, it is not clear what the
standard of review should be.
In Paragon Resources, supra, the Fifth Circuit was confronted
with the conundrum of what standard of review to apply to a lower
court's determination of whether a contract was ambiguous in light
of industry custom. In writing for the court, Judge Higginbotham
clarified the issue in a case such as the one before us today:
The U.C.C. thus adds a third level to a traditional two-level inquiry. Instead of asking, "Were the contract terms ambiguous" and then, "If they were ambiguous what do they mean in light of extrinsic evidence" the Code poses three inquiries:
1. Were the express contract terms ambiguous?
2. If not, are they ambiguous after considering evidence of course of dealing, usage of trade, and course of performance?
3. If the express contract terms by themselves are ambiguous, or if the terms are ambiguous when course of dealing, usage of trade, and course of performance are considered (that is, if the answer to either of the first two questions is yes), what is the meaning of the contract in light of all extrinsic evidence?
The first inquiry presents a question of law. The third inquiry presents a question of fact. The thorny problem is classifying the second inquiry as one of law or fact or both.
Id. at 996 (emphasis in original). The Paragon court did not have
to resolve this "thorny" issue because the court found that, as a
matter of law, the language was ambiguous without resort to
evidence of custom, and thus the lower court judge properly
8 considered all pertinent forms of extrinsic evidence. 695 F.2d at
996.
In another Fifth Circuit case applying New York law, Personal
Preference, supra, the court resolved the standard of review issue
by announcing that its decision would have been the same under both
the de novo and clearly erroneous standards of review. In this
case, the trial court had to determine whether the words
"closed-circuit television" rights were ambiguous. The trial court
answered in the affirmative and allowed extrinsic evidence of trade
usage of the words to be presented to the jury. The jury returned
a verdict for the plaintiff and on appeal the Fifth Circuit
reversed. In doing so the court first held, under de novo review,
that the term "closed-circuit television" was not ambiguous. 986
F.2d at 114. Then the court argued alternatively that, "[t]o the
extent that the industry meaning of the term closed circuit might
be considered a question of fact under New York law, we note that
the overwhelming evidence demonstrates as a matter of law that, in
the boxing industry, closed circuit refers to a type of venue, not
the method of transmitting the television signal." Id. (emphasis
in original).
Because we find that the Movie Rights Contract is ambiguous
as a matter of law, in regard to the disposition of video rights,
we shall follow the course taken in Paragon. We have already
explained that the vagaries of the definitions of television and
motion picture rights, in this era of multi-media, can embody the
idea of video rights based solely on the lexicographical meaning of
9 the words involved. Semantics aside, though, there is other
evidence of the ambiguity of the granting clause when we consider
the entire agreement represented in the Movie Rights Contract.
In addition to the overlap in meaning of some of its key
terms, the Movie Rights Contract is also ambiguous because, under
the circumstances, it is inconsistent to retain video rights when
motion picture rights are being sold. There is nothing to be
gained by the reservation of video rights when a video cannot be
produced without creating a motion picture—a right the appellants
concededly do not have here. It is possible that TMP (and the
appellants as TMP's successors-in-interest) could have wanted to
retain home video rights for the purposes of preventing the motion
picture and television market from being diluted. Yet that would
be a curious result in light of the fact that, in the very
agreement by which TMP retained video rights, it divested itself of
any interest in the motion picture and television rights. In any
event, a reservation of home video rights should certainly have
been explicitly reserved—if that were the intent—and should have
been expressly granted—if that were the intent—and therein lies the
ambiguity.
Having properly held that the granting clause of the contract
was ambiguous, the District Judge was correct in admitting
extrinsic evidence to determine the intent of the parties. The
proper standard of review of the District Court's findings is
clearly erroneous. Paragon Resources, 695 F.2d at 996; Eskimo Pie
Corp., 284 F.Supp. at 991-95. The District Judge reviewed a good
10 deal of extrinsic evidence, most of which was damaging to the
appellants. Perhaps most significant was the testimony of the
persons negotiating the agreement. Both Buchman and Katz,
negotiators for Triad and Phoenix respectively, testified that they
acted under the belief that they were transferring the video rights
to Evidence of Love in the Movie Rights Contract. Furthermore,
Buchman testified that she would have found it highly unusual to
retain the video rights when the motion picture and television
rights were being sold. It is not often that such agreement is
found in a contract dispute, and one would be hard pressed to
imagine more compelling extrinsic evidence of the parties' intent
than the unanimous assent of opposing negotiators.
There is other evidence indicating that the appellants did
not, and had no intention to, retain the video rights to their
book. In the Publishing Contract, the appellants granted the
broadest possible rights in their work to TMP. If the appellants
were so concerned with the retention of video rights, they would
not have granted them to TMP. Also, during the negotiations
between TMP and Phoenix, the appellants were given copies of each
subsequent agreement drafted and were kept abreast of the progress
between the parties. Not once did the appellants make any
objection or inquiry concerning the video rights.
Further, although certain rights were reserved in the
reservation clause of the Movie Rights Contract, TMP did not
reserve the video rights. The appellants are beneficiaries of a
general "reservation of all rights not granted" clause, but in
11 light of the specific recitals of rights reserved immediately
following it, this general reservation clause is of little benefit.
The rule of ejusdem generis applies where specific recitals in a
contract are either preceded or followed by an omnibus clause that
retains all rights not mentioned. In such circumstance, courts
often apply the rule to limit the actual rights reserved to those
specifically mentioned, or rights intimately analogous to those
mentioned. As such, having chosen not to specifically reserve the
video rights in their reservation clause, the appellants cannot
prosper by this boilerplate, catch-all clause. Herman v. Malamed,
110 A.D.2d 575, 487 N.Y.S.2d 791 (1st Dept.1985); Forward
Industries, Inc. v. Rolm of New York Corp., 123 A.D.2d 374, 506
N.Y.S.2d 453 (2nd Dept.1986). Based on the foregoing evidence
adduced at trial, we hold that the District Court's ruling was not
clearly erroneous, in that the evidence supports the contention
that the appellants did not retain the video rights to Evidence of
Love.
In addition, the New York rules of contract construction also
militate against a finding that the appellants reserved video
rights. One case that is particularly relevant to the controversy
at hand is Bartsch v. Metro-Goldwyn-Mayer, Inc., 391 F.2d 150 (2nd
Cir.), cert. denied, 393 U.S. 826, 89 S.Ct. 86, 21 L.Ed.2d 96
(1968). In that case, Bartsch granted to MGM "motion picture
rights throughout the world, in and to a certain musical play ...
together with the sole and exclusive right to ... copyright, vend,
license and exhibit such motion picture photoplays throughout the
12 world." Bartsch sold his rights in the play in 1930. Id. at 151-
53. Several years later, MGM decided to make a television
adaptation of the play, and Bartsch's estate sued, alleging that
television rights had not been granted. The Bartsch court began
its analysis by pointing out that the Bartsch had given to MGM the
broadest possible grant of rights in the play. Id. at 154. It
then noted that the grant of rights was not limited in any
meaningful sense.1 Finally, the court found that although
television was not as pervasive when the contract was entered into
as it was at the time of the suit, the record indicated that the
growth of television was foreseeable when Bartsch sold his rights
in the play. With these findings, the Bartsch court developed a
rule which is particularly applicable to the case at bar: when a
broad grant of rights is made in a contract, and a new use can be
construed to fall within that grant, and that use was foreseeable
at the time the grant was made, then the burden shall be on the
grantor to reserve the right to the new, but foreseeable, use. Id.
at 155; see also, Landon v. Twentieth Century-Fox Film Corp., 384
F.Supp. 450, 452 (S.D.N.Y.1974).
This rule is well suited to the present controversy. First,
the grant made to Phoenix was broad. Although the appellants argue
otherwise, the grant of "exclusive world wide motion picture and
television rights" is quite similar to language that other courts
1 Bartsch's contract with MGM contained a general reservation clause similar to the one appellants have here. For reasons in accord with those provided above, the Bartsch court gave no significance to the general reservation clause.
13 have construed as broad. In Platinum Record Co. v. Lucasfilm,
Ltd., 566 F.Supp. 226 (D.N.J.1983), the court read an assignment of
the right to use the plaintiff's copyrighted songs in a motion
picture to be broad enough to include the right to use the songs in
the production of a home video. This case involved a grant of
rights to use the plaintiff's copyrighted songs in the defendant's
motion picture. When the defendant released a home video version
of the motion picture the plaintiffs sued, alleging a copyright
infringement. The District Court relied on Bartsch in rejecting
the plaintiffs contention that a grant of motion picture rights was
not broad enough to include the use of home video. Id. at 227-28.
In Philadelphia Orchestra Ass'n v. Walt Disney Co., 821
F.Supp. 341 (E.D.Pa.1983), the Orchestra's grant of the right to
use its performance in a "feature picture," was deemed to be broad
enough to include the right to use the performance in a home video.
In answering the Orchestra's assertion that the term "feature
picture" cannot be taken to include a video, the court said "the
word "feature' refers to films of a certain length without regard
to the medium or location in which they are presented.... [T]he
common usage of the phrase "feature film' does not necessarily
imply a presentation in a theatre outside of the home." Id. at
345. The same is true here, except that the appellants did not
even limit the motion picture rights they granted to Phoenix with
any qualifier. This does not necessarily mean, and we do not today
hold, that every grant of motion picture rights automatically
includes the right to produce videos. Rather, we hold that a
14 general grant of motion picture rights is potentially broad enough
to contemplate the later use of video as means of distribution.
See also, Rooney v. Columbia Pictures Industries, Inc., 538 F.Supp.
211 (S.D.N.Y.), aff'd, 714 F.2d 117 (2nd Cir.1982), cert. denied,
460 U.S. 1084, 103 S.Ct. 1774, 76 L.Ed.2d 346 (1983); Brown v.
Twentieth Century Fox Film Corp., 799 F.Supp. 166 (D.D.C.1992).
All that remains to satisfy the Bartsch test is that the new
use be foreseeable, and that the appellants did not specifically
reserve the video rights. It is not contestable that when the
grant to Phoenix was made in June 1988 the use of video as a medium
for the distribution of motion pictures was foreseeable. The home
video may not have been an antiquity in 1988, but it had certainly
been with us long enough for the appellants to be cognizant of its
existence. The appellants do not contend otherwise, nor could
they, since they are claiming that they actually intended to
reserve the video rights to their book. It is also not in dispute
that the appellants did not specifically reserve the video rights.
There is no mention of video rights in the Movie Rights Contract
and, in fact, the record indicates that video rights were not
expressly mentioned by any party to this litigation until after the
Movie Rights Contract was entered into. Therefore, the rule
enunciated in Bartsch controls in this case and compels a judgment
in Phoenix's favor.
CONCLUSION
In sum, we hold that the granting clause whereby the
appellants sold their rights to Evidence of Love was ambiguous as
15 a matter of law. As such the District Court properly considered
extrinsic evidence of the parties' intent, which overwhelmingly
indicates that the appellants intended to transfer the video rights
to the book. Furthermore, we hold that under New York rules of
contract construction, the burden was on the appellants to reserve
video rights to their work, if such was their intent. Therefore,
the appellants have conveyed their interests in the video rights of
their book and, since Phoenix owns such rights, its licensing of
its copyrighted motion picture based on said book for home video
does not constitute any infringement of whatever rights the
appellants may have retained in their book.
The judgment of the District Court is AFFIRMED.