Ellington v. EMI Music, Inc., 24 N.Y.3d 239 (2014)
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When contract language is ambiguous, courts must consider the intent of the parties and industry custom at the time of the agreement, especially when technological or business model shifts impact the original understanding.
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Summary
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The Ellington family sued EMI Music, alleging breach of contract regarding royalty payments from Duke Ellington’s compositions. The core dispute centered on the interpretation of “affiliate” in their agreement, specifically concerning foreign sub-publishers. The Ellingtons claimed EMI used its foreign affiliates to reduce their royalty share, contrary to the original intent. The Court of Appeals affirmed the dismissal, finding the contract unambiguous and favoring EMI’s interpretation. However, the dissent argued the term “affiliate” was ambiguous and should be interpreted in light of industry practices at the time the agreement was made.
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Facts
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The Ellington family entered into a royalty agreement with music publishers, including EMI’s predecessor, concerning Duke Ellington’s musical works. The agreement stipulated royalties based on net revenues from various sources, including foreign publications. Over time, music publishers began using their own affiliates for foreign sub-publishing, rather than independent entities. The Ellington family contended that EMI was improperly reducing their royalties by using affiliated foreign sub-publishers and not including those payments as part of “net revenue actually received.”r
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Procedural History
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The Ellington family filed suit against EMI Music for breach of contract. The Supreme Court dismissed the complaint, and the Appellate Division affirmed. The Court of Appeals granted leave to appeal.
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Issue(s)
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Whether the term “affiliate” in the royalty agreement is ambiguous, requiring consideration of extrinsic evidence and industry custom at the time the agreement was made to determine if it includes foreign sub-publishers and how that impacts royalty calculations.
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Holding
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No, because the contract language was deemed unambiguous, and therefore the court declined to consider extrinsic evidence regarding industry custom or the parties’ intent beyond the four corners of the agreement.
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Court’s Reasoning
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The majority found the agreement clear on its face, requiring enforcement according to its plain meaning. The court reasoned that even though music industry practices had changed over time (globalization), the original contract terms still governed. The majority rejected the argument that “affiliate” was ambiguous and could include foreign sub-publishers. The dissent, however, emphasized the importance of interpreting contracts in light of the parties’ intent and the prevailing industry custom at the time of the agreement. The dissent argued that the ambiguity of “affiliate,” combined with the evolution of music publishing practices, warranted a closer examination of whether EMI was circumventing its royalty obligations. Quoting Greenfield v Philles Records, the dissent noted, “Despite the technological innovations that continue to revolutionize the recording industry, long-settled common-law contract rules still govern the interpretation of agreements between artists and their record producers.” The dissent suggested EMI’s interpretation allowed them to