Brown v. Goldstein

Filed 3/27/19; Certified for Publication 4/16/19 (order attached)

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

HAROLD BROWN, et al., B278949

Plaintiffs and Appellants, (Los Angeles County

Super. Ct. No. BC559691)

v.

GERALD GOLDSTEIN, et al.

Defendants and Respondents.

APPEAL from a judgment of the Superior Court of Los

Angeles County, William F. Fahey, Judge. Reversed.

Freundlich Law, Kenneth D. Freundlich and Michael J.

Kaiser; Law Offices of Max J. Sprecher and Max J. Sprecher, for

Plaintiffs and Appellants.

Klapach & Klapach and Joseph S. Klapach; Kozberg &

Bodell and Gregory Bodell, for Defendants and Respondents.

__________________________

Former and current members of the band WAR filed a

breach of contract action alleging that their music publisher had

failed to pay them a share of the royalties generated from public

performances of the band’s songs.

The publisher filed a motion for summary judgment

arguing that the parties’ music publishing agreement did not

require it to pay the band any royalties derived from song

performances. Plaintiffs, however, argued the agreement was

ambiguous, and filed extrinsic evidence in support of their

interpretation. The trial court concluded the agreement was not

reasonably susceptible to the plaintiffs’ proposed interpretation,

and granted judgment in the publisher’s favor. We reverse.

FACTUAL BACKGROUND

A. Background Information Regarding the Music

Publishing Industry

A music publishing agreement is a contract between a

songwriter and a publishing company that sets forth the

ownership of the copyright in the subject musical compositions,

and the division of revenue generated from the use of those

compositions. Under the traditional form of music publishing

agreement, the songwriter assigns his or her copyright interest in

the composition to the publisher. In return, the publisher agrees

to promote and exploit the composition on the market, and pay

the songwriter his or her share of royalties. (See generally

Broadcast Music, Inc. v. Roger Miller Music, Inc. (6th Cir. 2005)

396 F.3d 762, 765 (Roger Miller) [describing the “basics of the

music industry”].)

There are four primary categories of royalty income

generated from music publishing: (1) “mechanical royalties,”

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consisting of income from the sale of records, audiocassettes,

compact discs, etc.; (2) “synchronization royalties,” consisting of

income from music that is synchronized with a visual image, such

as a movie, television show or commercial; (3) “song book and

folio royalties,” consisting of income from the sale of printed

music; and (4) “public performance royalties,” consisting of

income from public performances of the music composition,

including, for example, radio broadcasts, streaming broadcasts

and live performances in music venues.

In standard publishing agreements, the publisher is

responsible for collecting the first three categories of royalties

from third parties who have licensed the composition, and then

paying the songwriter his or her contracted share of those

royalties, typically 50 percent. However, the writer and

publisher normally agree to affiliate with a “performing rights

organization” (PRO) to collect and distribute public performance

royalties (hereafter performance royalties or performance

income). “Broadcast Music, Inc. (BMI) and the American Society

of Composers, Authors and Publishers (ASCAP) are the two

principal [PROs] operating in the United States.” 1 (Roger Miller,

supra, 396 F.3d at p. 765.) “Commonly, writers and publishers

1 “ASCAP was created in 1914 by music creators and

publishers as an unincorporated membership association. BMI

was founded by broadcasters in 1939. Each represents hundreds

of thousands of songwriters, composers, and publishers who hold

copyrights in millions of musical works. They negotiate,

implement, and enforce agreements with licensees that grant the

right to perform their members’ copyrighted songs. . . . Together,

ASCAP and BMI license the music performance rights to most

domestic copyrighted music in the United States.” (Broadcast

Music, Inc. v. DMX Inc. (2d Cir. 2012) 683 F.3d 32, 36.)

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agree to be paid their respective shares of performing rights

royalties directly by the [PRO].” (Ibid.) As with most other forms

of music publishing income, the songwriter is typically entitled to

50 percent of the performance royalties, and the publisher is

entitled to the remaining 50 percent.

B. Summary of the Parties’ Agreements

1. The 1970 Agreement

In 1970, each member of the band WAR entered into an

identically-worded music publishing agreement with Far Out

Music (FOM), then owned by Gerald Goldstein and his now-

deceased partner, Stephen Gold. In exchange for each band

member’s copyrights to the music compositions he had written (or

co-authored), FOM agreed to pay the following royalties, set forth

in paragraph 9: (1) 4 cents per copy of sheet music, and 10

percent of income generated from sale of music folios; and (2) 50

percent of the net sums received from mechanical royalties,

synchronization royalties and foreign income (income generated

from the sale or license of the compositions outside the United

States). Paragraph 9(d) of the Agreement, however, directed that

the writer “shall receive his public performance royalties . . .

directly from his own affiliated performing rights society and

shall have no claim whatsoever against publisher for any

royalties received by publisher as a distribution from any

performing right society which makes payment directly . . . to

writers authors and composers.” 2

2 The 1970 Agreement clarified that the royalties described

in paragraph 9 were “payable solely to Writer in instances where

Writer is the sole author of the entire composition. . . . However,

in the event that other songwriter(s) is (are) co-author(s) along

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The 1970 Agreement did not entitle the band members to

any form of payment other than the royalties set forth in

paragraph 9.

2. The 1972 Memorandum of Understanding

Following the publication of a successful album in 1971, the

band retained attorney Nicholas Clainos to represent them in

litigation against FOM and several FOM-related entities. As

part of the litigation, the band sought to terminate the 1970

Agreement, and negotiate a new agreement that included more

favorable terms.

After extensive negotiations between Clainos and Stephen

Gold, the parties signed a “Memorandum of Agreement” on

August 22, 1972 (the MOA) that included the following preface:

“Prior to the preparation of formal contracts between [the band

members] and [FOM], this memorandum of agreement will

confirm the agreements we have reached with respect to the

subject matter contained herein.” The MOA further provided

that each band member would “enter into an exclusive songwriter

agreement upon the terms and conditions hereinafter set forth,

as well as those standard terms which are customary in the

entertainment industry in the agreements of this type.”

Paragraph 3(b) of the MOA described the royalties FOM

had agreed to pay the band, which were essentially identical to

the royalties set forth in paragraph 9 of the 1970 Agreement:

“The songwriter will receive $.04 for sheet music; 10% of the

wholesale selling price for other printed copies; 50% of all net

with the Writer on any specific work hereunder, then the

foregoing royalties shall be divided equally between Writer and

the other songwriters for such work unless another division of

royalties is agreed upon between the parties concerned.”

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sums received from the utilization of mechanical, electrical

transcriptions, and synchronization rights; and 50% of all foreign

monies received. It is acknowledged that the writer will receive

directly from his own performing rights society the writer’s

portion of any and all performance monies which shall become

due.”

In addition to the royalties described in paragraph 3(b),

however, the MOA included a new provision, set forth at

paragraph 3(e), that entitled the band to a share of the income

FOM received from the exploitation of the compositions: “In

addition to the foregoing, the writer shall receive with respect to

those songs which he has written, a sum equal to 30% . . . share

of publisher’s income (after deduction for collection fees, direct

costs and administration fees).”

The final paragraph of the MOA reiterated that the terms

set forth therein “correctly reflect[ed] [the signatories’] mutual

understanding. . . . Until formal contracts are entered

into . . . reflecting the agreements set forth above, this

memorandum of agreement shall for all purposes govern and

bind the parties hereto.”

3. The 1972 Agreement

Shortly after signing the MOA, the parties signed the 1972

Agreement, which was to take effect as of August 22, 1972, the

same date the MOA was signed. 3

3 As with the 1970 Agreement, each member of the band

signed a separate, identically-worded agreement that assigned

FOM the copyrights to the musical compositions he wrote (or co-

wrote) in exchange for the payments described therein. The

individual 1972 Agreements likewise included language

clarifying that the payments described therein were to be paid

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Paragraph 7 of the 1972 Agreement set forth the royalties

FOM agreed to pay the band, which were the same amounts set

forth in paragraph 3(b) of the MOA. The 1972 Agreement

however, contained modified language regarding the payment of

performance royalties. Paragraph 7(c), for example, stated that

the writer was to receive “50% of any and all net sums actually

received by the Publisher from the mechanical rights, electrical

transcriptions, . . . synchronization and . . . and all other rights

(except as otherwise specifically provided for herein) . . ., except

that the Writer shall not be entitled to share in any sum or sums

received by the Publisher from [a PRO].” Paragraph 7(d)

similarly provided that band members were entitled to 50 percent

of the net sum of any foreign income “other than public

performance uses for which Writer is paid by any [PRO].”

Finally, paragraph 7(f) confirmed that “the publisher shall

not be required to pay royalties earned by reasons of the public

performances of the composition; said royalties being payable

only by the [PRO] with which Writer is or may in the future

become affiliated.”

As with the MOA, the 1972 Agreement included an

additional provision, set forth at paragraph 22, that entitled the

writer to receive a 30 percent share of FOM’s revenue after the

deduction of certain administrative costs and fees:

solely to the writer “in instances where Writer is the sole author

and composer of the composition,” and “with regard to

compositions where there are other writers, the Writer shall be

paid only a portion of said [payments] which shall be determined

by dividing the total [payments] payable by the number of writers

for such composition, unless a different division . . . is agreed up

by all such writers. . . .”

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22. In addition to the royalties provided for in Paragraph 7

above, all monies actually earned and received from the sale,

lease, license, disposition or other turning to account of rights

in the Compositions, including all monies received in

connection with the infringement by third parties of rights in

the Compositions (“Composition Gross Receipts”) shall be

treated as follows:

(a) Publisher shall be entitled first to deduct any and all

administration and related fees from the Composition

Gross receipts. . . .;

(b) Publisher shall then deduct from Composition Gross

Receipts . . . the royalties due to the composers of the

composition in accordance with any agreement the

Publisher may have with such composers;

(c) From the balance of the Composition Gross Receipts

remaining . . . , Publisher shall be entitled to deduct and

retain amounts equal to the following direct costs actually

advanced or incurred by Publisher in realizing Composition

Gross Receipts (Composition Costs): All costs of

copyrighting the composition; . . . legal fees [relating to any

claim of copyright infringement]; Accounting fees. . . . [etc.];

(d) 30% of the balance of the Composition Gross Receipts

remaining after the deductions provided for in Paragraphs

22(a), 22(b) or 22(c) hereof . . . shall belong to Writer and be

paid to Writer . . . .”

4. The 1975 Agreement and subsequent litigation

In 1975, FOM and the band members signed a new

agreement (the 1975 Agreement) that modified the payout

formula set forth in paragraph 22 of the 1972 Agreement. The

new revenue sharing provision provided that, after the

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deductions of certain administrative costs and fees, FOM would

be entitled to 25 percent of the Composition Gross Receipts, and

the writer would be entitled to the remaining balance. The 1975

Agreement did not alter the definition of Composition Gross

Receipts, or otherwise affect the categories of revenue that FOM

was to include when calculating the amount due under

paragraph 22. Instead, the new agreement only altered the

formula used to determine the band member’s share of

Composition Gross Receipts.

In 2009 and 2011, several band members brought multiple

lawsuits in connection with FOM’s payment of royalties under

the parties’ publishing agreements. The litigation resulted in two

settlement agreements, both of which contained language

confirming that the 1972 Agreement and 1975 Agreement

remained in effect.

C. The Current Litigation

1. Summary of plaintiffs’ claims

In October 2014, several current and former band members

(or their successors-in-interest) (collectively plaintiffs or the

band) filed the current breach of contract action against FOM,

Gerald Goldstein and numerous FOM-related entities

(collectively FOM). The complaint alleged FOM had violated the

terms of the 1972 Agreement by excluding public performance

royalties from “Composition Gross Receipts” described in

paragraph 22, denying plaintiffs their right to share in that

category of income.

The complaint alleged paragraph 22 defined Composition

Gross Receipts to include “all moneys” FOM had received from

the sale, lease or license of the compositions, which necessarily

included any performance royalties FOM had received from its

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PRO. The complaint further alleged FOM had consistently “paid

[plaintiffs] royalties on [its share] of ‘performance income’

without fail for nearly four decades.” In December of 2013,

however, FOM “suddenly . . . , [and] without any basis for doing

so, eliminated [its] share of public performance as a category of

income for which [it] w[as] paying participant royalties . . . .”

In their prayer for relief, plaintiffs sought a declaration

that FOM’s “share of public performance revenue is to be

included in the revenue base upon which [FOM] account[s] to and

pay[s] Plaintiffs pursuant . . . to paragraph 22 of the [1972

Agreement].” They also sought contract damages for any

accounting period during which FOM had excluded its

performance royalties from Composition Gross Receipts. 4

2. FOM’s motion for summary judgment

a. Summary of FOM’s motion

FOM filed a motion for summary judgment arguing that

the plain and unambiguous language of the 1972 Agreement

made clear that the publisher’s performance royalties were to be

excluded from paragraph 22’s revenue-sharing provision. In

support, FOM cited language in paragraphs 7(c) and (f) of the

agreement stating that the writer was not “entitled to share in

any . . . sums received by the Publisher from [any PRO],” and

4 Plaintiffs’ complaint included an additional claim alleging

that FOM had breached the terms of the written agreements by

failing to use the revenue sharing formula set forth in the 1975

Agreement, and instead continuing to use the formula set forth in

the 1972 Agreement. During the trial court proceedings,

however, plaintiffs voluntarily dismissed that portion of their

complaint. The parties agree that any continuing disputes they

may have regarding the 1975 Agreement are not relevant to the

issues in this appeal.

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that “the publisher shall not be required to pay royalties earned

by reasons of the public performances of the composition.”

According to FOM, this language unambiguously “exclude[d] . . .

all public performance royalties as a source of revenue which

must be included in the formulae [set forth in paragraph 22].”

FOM further asserted that paragraph 22 could not be read

to “grant rights [to plaintiffs] that [were] specifically excluded by

Paragraph 7.” FOM explained that the revenue-sharing payment

described in paragraph 22 was to be made “in addition to”

whatever royalties were due under paragraph 7, which expressly

excluded any type of payment for performance royalties. FOM

contended that because paragraph 7 excluded performance

royalties, such royalties were necessarily excluded from

paragraph 22. According to FOM, any other interpretation would

render paragraph 7’s exclusion of performance royalties

meaningless.

FOM did not submit any extrinsic evidence in support of its

interpretation of the 1972 Agreement. Instead, it relied solely on

the text of the agreement, and declarations authenticating the

document.

b. Plaintiffs’ opposition and extrinsic evidence

Plaintiffs, however, argued the 1972 Agreement should be

interpreted to require FOM to include performance royalties in

the base amount used to calculate the revenue-sharing payment

due under paragraph 22. Plaintiffs noted that paragraph 22

specifically defined Composition Gross Receipts to include “all

moneys” FOM had received from the sale or lease of the

compositions, and contained no language excluding performance

royalties. Plaintiffs further asserted the language FOM had cited

in paragraph 7 was merely intended to clarify that FOM had no

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duty to pay plaintiffs royalties for performance revenue because

the band was to receive all of its performance royalties directly

from its PRO. Paragraph 22, in contrast, described a separate

and distinct type of payment consisting of a share of all revenue

FOM received from the exploitation of the music, including

performance royalties.

In support of their opposition, plaintiffs submitted copies of

all the parties’ prior written agreements, and declarations from

several witnesses, including: (1) Nicholas Clainos, the attorney

who negotiated the 1972 Agreement on the band’s behalf; (2)

Michael Perlstein, an attorney specializing in the music industry;

and (3) Fred Wolinsky, a certified public accountant specializing

in music industry accounting.

i. Declaration of Nicholas Clainos

Nicholas Clainos’s declaration stated that his primary

contact at FOM during the negotiation of the 1972 Agreement

was Steven Gold, who Clainos described as a co-owner of the

company. Clainos asserted that he had told Gold the band would

drop its legal claims regarding the 1970 Agreement if FOM

agreed to enter into a new agreement that contained a provision

entitling the band to participate in “the pool of the publisher’s

share of money,” which was to include “the entire pot of money

collected by the publisher for all sources, including the

publisher’s share of public performance monies.”

According to Clainos, “[Gold] agreed to the participation

concept,” and then “prepared the 1972 [MOA] as a temporary

document and foundation for drafting a long

form. . . . Subparagraphs (a) through (d) of paragraph 3 of the

1972 [MOA] reiterate FOM’s previously existing obligation to pay

[the band royalties]. . . . [¶] . . . . Paragraph 3(e) is the language

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that [Gold] prepared based upon our discussion and our

agreement for payment to my clients of a percentage of 30% of all

the publisher’s share of income in addition to the monies payable

solely for their [royalties].”

Clainos further stated that before the parties signed the

1972 MOA, he reaffirmed with Gold that the band’s 30 percent

participation in FOM’s share of revenue “was to include 100% of

all revenue the publisher received, including the publisher’s

public performance revenue. [Gold] acknowledged that such was

the agreement . . . .” Clainos also asserted that when drafting the

1972 Agreement, he and Gold “specifically . . . discuss[ed]” that

paragraph 22 was intended to apply to all forms of revenue that

FOM actually received, “including the publisher’s share of public

performance revenues, less only specifically delineated

deductions.”

ii. Declaration of Michael Perlstein

Michael Perlstein’s declaration stated that he had over 50

years of experience representing clients in the music industry,

and was “very familiar” with “the standard music publishing

industry practices of [the 1970s], the customs and practices in

connection with such contracts . . . and the customary usage of

terminology in such contracts.” Perlstein provided an overview of

the music publishing industry, explaining the various forms of

revenue derived from musical compositions, the origins of

performing rights organizations and how publishing agreements

had evolved during the 20th Century.

According to Perlstein, the plaintiffs’ 1970 and 1972

Agreements reflected the favorable changes that more successful

songwriters were able to impose on publishers during that era.

Specifically, Perlstein explained that the original 1970

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Agreement merely provided the band members traditional

royalty payments, while the 1972 Agreement, negotiated after

the band had become more successful, contained a new and

additional paragraph entitling them to “receive from FOM, a

portion of the publisher’s share [of revenue].”

Perlstein further asserted that, “as used in publishing

contracts of the period, i.e., usage of trade, the word ‘all’ used

here in this new arrangement set forth in paragraph 22 meant

what it says – all monies actually earned and received by a

publisher such as FOM from all sources, including the publisher’s

share of performance royalties paid to FOM by its PRO (in this

case ASCAP). This customary usage also was customarily

defined by terms such as ‘Composition Gross Receipts’ which was

used at that time (and at present) as an all-encompassing

reference subject only to deductions specified directly in

connection with such definition.”

Perlstein contended that in his “nearly 50 years of

experience of drafting and negotiating music publishing

agreement[s] and evaluating them for [his] publishing catalogue

clients . . ., [he had] never seen a music publishing contract which

provided for songwriters to be paid a portion of the publisher’s

share of . . . income that did not include in its base amount, the

publisher’s share of public performance income.”

iii. Declaration of Frederick Wolinsky

Frederick Wolinsky’s declaration stated that he had “more

than 35 years of experience in royalty and forensic accounting in

the music industry,” and had personally participated in an audit

between the parties in 2007. Wolinsky further asserted that he

had reviewed the parties’ prior publishing agreements, and “at

least 30 years of statements issued by defendants.” Based on his

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review of those materials, Wolinsky concluded that until May of

2014, FOM had “consistently included [its] share of . . . public

performance revenue in . . . calculat[ing] . . . and pay[ing]

Plaintiffs’ . . . ‘participant’s share’ under paragraph 22 of the

1972 [Agreement].”

Wolinksy’s declaration identified and attached as exhibits

five accounting statements that were “consistent with the [other]

statements” he had reviewed in rendering his opinion. The five

statements were from six-month accounting periods in 1982,

2007, 2011 and 2013. Three of the statements (from 1982, 2007

and 2011) did not specifically reference performance royalties;

instead the statements only showed the total amount of income

FOM had paid to the band members for each song during that

accounting period. The two other statements, which covered six-

month periods in 2011 and 2013, used a different format that

included a separate line item showing FOM had paid band

members a share of performance royalties during that period.

Wolinksy further stated that in May of 2014, FOM sent

plaintiffs a letter asserting that they were “not entitled to share

in the publisher’s share of performance royalties,” and that some

prior statements reflected an “overpayment in connection with

performance royalties.” The letter further explained that FOM

intended to offset those overpayments against future royalty

payments owed to plaintiffs. According to Perlstein, “[t]his

reversed [FOM’s] decades-old course of performance,” and was

“inconsistent with at least 30 years of prior statements.”

3. FOM’s reply brief

In its reply brief, FOM reasserted that “the words of the

[1972 Agreement] plainly and clearly manifest the intentions of

the parties in 1972 that the publisher’s public performance

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royalties would not be included in the calculation of royalties to

plaintiffs.” FOM further asserted that the trial court should not

consider any of the plaintiffs’ extrinsic evidence because the 1972

Agreement was not reasonably susceptible to their proposed

interpretation. According to FOM, the extrinsic evidence was

instead admitted for an improper purpose: “to create for the

parties a contract which they did not make and . . . insert

language which one party now wishes were there.”

FOM also attacked the relevancy and credibility of the

extrinsic evidence. First, it contended the 1972 MOA was not

relevant to the interpretation of the 1972 Agreement because the

MOA had been “superseded by the 1972 Agreement.” Second,

FOM argued that Clainos’s declaration was “irrelevant” because

his statements merely asserted that he and Gold had

“discussions” about certain aspects of the 1972 Agreement

without explaining “what the parties said to one another and

what was expressly agreed between them.” FOM argued

Perlstein’s declaration was likewise of “no value” because his

customs and usage testimony conflicted with the plain language

of the 1972 Agreement, which expressly excluded any form of

payment for performance royalties.

Finally, FOM argued that Wolinksy’s “course of

performance” testimony was “irrelevant” and inadmissible

because it lacked “factual and evidentiary foundation.” FOM

explained that although Wolinsky claimed the materials he had

reviewed showed FOM had paid plaintiffs a share of performance

royalties for decades, his declaration failed to “disclose how [he

had] divined [t]his conclusion.” FOM noted that only two of the

five accounting statements Wolinsky had included with the

declaration actually referenced performance royalties, which was

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insufficient to establish a “course of performance.” FOM further

asserted that the letter Wolinsky had referenced in his

declaration made clear that the inclusion of performance

royalties in these two statements was the result of an accounting

mistake.

FOM’s reply brief was accompanied by evidentiary

objections seeking to exclude substantial portions of the

declarations and documents plaintiffs had filed in support of their

opposition, including all of Wolinsky’s testimony related to FOM’s

past payment of performance royalties.

D. The Trial Court’s Ruling and Judgment

After a hearing, the trial court issued an order granting

FOM’s motion for summary judgment. In its analysis, the court

agreed with FOM that paragraph 7 impliedly excluded

performance royalties from the payment due under paragraph 22:

“The language of paragraph 7 . . . specifically excludes, in three

separate subparagraphs, public performance royalties from being

shared with the ‘writer,’ i.e., plaintiffs. It would be difficult to

imagine a more clear mutual intention of the parties at that time.

Nothing in the more general language of [paragraph] 22 of this

agreement modifies this exclusion.”

The trial court also agreed that plaintiffs’ extrinsic

evidence was insufficient to “avoid” the “straightforward

language in the [parties’ agreement].” The court first addressed

Wolinsky’s declaration, concluding that his statements regarding

FOM’s prior practice of paying plaintiffs a share of performance

royalties were speculative, and lacked adequate foundation. The

court explained that the accounting statements Wolinsky had

attached to his declaration showed only that FOM had paid

performance royalties to plaintiffs in 2011 and 2013, which was

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“insufficient to establish a course of conduct ‘for decades.’” In an

accompanying order, the court sustained FOM’s evidentiary

objections to all of Wolinsky’s “course of conduct” testimony. The

court, however, overruled objections to the actual accounting

statements Wolinsky had attached to his declaration. 5

The court next addressed Clainos’s declaration, concluding

that the admissible portions of his statements merely showed he

had discussed paragraph 22 with Gold, or otherwise related his

subjective beliefs as to the meaning of paragraph 22. According

to the court, Clainos’s opinions regarding the meaning of

paragraph 22, and his alleged discussions with Gold regarding

that issue, were “insufficient to prove plaintiffs’ suggested

interpretation. . . .” 6

5 The court also sustained FOM’s evidentiary objections to

certain statements contained within the declarations of Clainos

and Perlstein. Except as discussed below in footnote six (see post,

p. 19, n. 6), when conducting our review, we will not consider any

of the extrinsic evidence that the trial court ruled inadmissible.

Although plaintiffs have challenged several of those evidentiary

rulings, we need not address the arguments because our

resolution of the case would be the same even if the evidence had

been admitted.

6 In its analysis of Clainos’s declaration, the court also stated

that FOM’s reply brief had “object[ed] to portions of the

. . . declaration which rely on hearsay statements . . . . of Steve

Gold.” The trial court concluded FOM’s hearsay objections were

“well-taken” because Gold was “a non-party,” and excluded all

testimony in the declaration that described statements Gold had

allegedly made to Clainos. A review of FOM’s reply brief,

however, shows that it did not actually raise hearsay objections

to Clainos’s statements about what Gold had purportedly said to

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Finally, the court addressed Perlstein’s usage and custom

testimony. According to the court, Perlstein’s statements merely

related his “legal opinions” as to the meaning of paragraphs 7

and 22, which the court deemed to be “irrelevant.”

On September 16, 2016, the court entered judgment in

FOM’s favor.

DISCUSSION

Plaintiffs argue that the trial court erred in concluding the

1972 Agreement is not reasonably susceptible to their proposed

interpretation. Plaintiffs assert that the text of the document

and the uncontroverted extrinsic evidence demonstrate that their

proposed interpretation is not only reasonable, but also the

correct interpretation of the parties’ agreement.

A. Standard of Review and Applicable Law

1. Standard of review

him. Instead, FOM argued only that Clainos’s testimony about

his discussions with Gold was not relevant to the contract’s

meaning because Clainos failed to specify exactly what Gold had

said to him. Moreover, the evidentiary objections FOM filed with

its reply brief did not assert any hearsay objections to this

portion of Clainos’s declaration. Because the record establishes

FOM did not raise any hearsay objection to Clainos’s testimony

describing what Gold said to him, it was improper for the court to

exclude that portion of his declaration. (See Code of Civ. Proc.,

§ 437c, subd. (c) [“[i]n determining whether the papers show that

there is no triable issue as to any material fact the court shall

consider all of the evidence set forth in the papers, except that to

which objections have been made and sustained by the

court. . . .”]; Reid v. Google, Inc. (2010) 50 Cal.4th 512, 526

[section 437c requires that, when deciding a summary judgment

motion, “the trial court must consider all evidence unless an

objection to it has been raised and sustained”].)

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“Summary judgment is appropriate ‘if all the papers

submitted show that there is no triable issue as to any material

fact and that the moving party is entitled to a judgment as a

matter of law.’ [Citation.]. . . . [¶] Our review is de novo.

[Citation.] We liberally construe the opposing party’s evidence

and resolve all doubts in favor of the opposing party. [Citation.]

We consider all evidence in the moving and opposition papers,

except that to which objections were properly sustained.” (Jacobs

v. Coldwell Banker Residential Brokerage Co. (2017) 14

Cal.App.5th 438, 443.)

2. Rules governing the interpretation of contracts

“The rules governing the role of the court in interpreting a

written instrument are well established. The interpretation of a

contract is a judicial function. [Citations.] In engaging in this

function, the trial court ‘give[s] effect to the mutual intention of

the parties as it existed’ at the time the contract was executed.

[Citation.] Ordinarily, the objective intent of the contracting

parties is a legal question determined solely by reference to the

contract’s terms. [Citation.]” (Wolf v. Walt Disney Pictures &

Television (2008) 162 Cal.App.4th 1107, 1125-1126 (Wolf).)

“The court generally may not consider extrinsic evidence of

any prior agreement or contemporaneous oral agreement to vary

or contradict the clear and unambiguous terms of a written,

integrated contract. [Citations.] Extrinsic evidence is

admissible, however, to interpret an agreement when a material

term is ambiguous. [Citations.]” (Wolf, supra, 162 Cal.App.4th

at p. 1126; see also Pacific Gas & Electric Co. v. G.W. Thomas

Drayage & Rigging (1968) 69 Cal.2d 33, 39-40 [if extrinsic

evidence reveals that apparently clear language in the contract

is, in fact, “susceptible to more than one reasonable

20

interpretation,” then extrinsic evidence may be used to determine

the contracting parties’ objective intent].)

“The interpretation of a contract involves ‘a two-step

process: First the court provisionally receives (without actually

admitting) all credible evidence concerning the parties’ intentions

to determine “ambiguity,” i.e., whether the language is

“reasonably susceptible” to the interpretation urged by a party.

If in light of the extrinsic evidence the court decides the language

is “reasonably susceptible” to the interpretation urged, the

extrinsic evidence is then admitted to aid in the second step –

interpreting the contract. [Citation.]’ [Citation.]” (Wolf v.

Superior Court (2004) 114 Cal.App.4th 1343, 1351 (Wolf II)

[citing and quoting Winet v. Price (1992) 4 Cal.App.4th 1159,

1165 (Winet)]; see also Wolf, supra, 162 Cal.App.4th at p. 1126.)

“When there is no material conflict in the extrinsic

evidence, the trial court interprets the contract as a matter of

law. [Citation.] This is true even when conflicting inferences

may be drawn from the undisputed extrinsic evidence [citations]

or that extrinsic evidence renders the contract terms susceptible

to more than one reasonable interpretation. [Citations.] If,

however, there is a conflict in the extrinsic evidence, the factual

conflict is to be resolved by the jury. [Citations.]” (Wolf, supra,

162 Cal.App.4th at pp. 1126-1127; see id. at p. 1134 [“that

extrinsic evidence may reveal an ambiguity subjecting a contract

to more than one reasonable interpretation does not mean

resolution of that ambiguity is necessarily a jury question.

Absent a conflict in the evidence, the interpretation of the

contract remains a matter of law”].)

On appeal, a “trial court’s ruling on the threshold

determination of ‘ambiguity’ (i.e., whether the proffered evidence

21

is relevant to prove a meaning to which the language is

reasonably susceptible) is a question of law, not of fact.

[Citation.] Thus[,] the threshold determination of ambiguity is

subject to independent review. [Citation.]” (Winet, supra, 4

Cal.App.4th at p. 1165)

“The second step – the ultimate construction placed upon

the ambiguous language – may call for differing standards of

review, depending upon the parol evidence used to construe the

contract.” (Winet, supra, 4 Cal.App.4th at pp. 1165-1166.)

However, where no extrinsic evidence was admitted, or the

extrinsic evidence is not conflicting, “the appellate court will

independently construe the writing.” (Id. at p. 1166; see also

Department of Forestry & Fire Protection v. Lawrence Livermore

National Security, LLC (2015) 239 Cal.App.4th 1060, 1066 [“On

appeal from a summary judgment based on a trial court’s

interpretation of a contract, we are not bound by that

interpretation . . . if there is no extrinsic evidence concerning its

interpretation, [or] . . . if there is no conflict in such evidence”].)

B. The 1972 Agreement is Reasonably Susceptible to

Plaintiffs’ Interpretation

The first question we must address is whether the 1972

Agreement “is ‘reasonably susceptible’ to the interpretation urged

by [plaintiffs.] If it is not, the case is over. [Citation.]” (Southern

Cal. Edison Co. v. Superior Court (1995) 37 Cal.App.4th 839, 847

(Southern Cal. Edison).) After provisionally receiving plaintiffs’

extrinsic evidence (except for those portions to which objections

were sustained), the trial court concluded that the revenue-

sharing provision in paragraph 22 could not be reasonably

interpreted to include income FOM had received from

performance royalties. In support, the court relied on language

22

in paragraph 7 stating that plaintiffs were not entitled to share

in any sums FOM had received from a PRO for performance

royalties.

We disagree with the trial court’s threshold determination.

As the plaintiffs note, paragraph 22 of the agreement does not

contain any language indicating that performance royalties are to

be excluded from “Composition Gross Receipts,” which defines the

pool of income that is subject to plaintiffs’ revenue sharing rights.

Instead, paragraph 22 states that Composition Gross Receipts

consists of “all monies actually earned and received from the sale,

lease, license, disposition or other turning to account of rights in

the Compositions. . . .” FOM does not dispute that performance

royalties are a form of “money . . . earned” from the sale or license

of the compositions that are subject to the 1972 Agreement.

Thus, considered in isolation, the language of paragraph 22

supports the plaintiffs’ interpretation of the agreement.

FOM contends, and the trial court agreed, that despite the

absence of any exclusionary language in paragraph 22, the text of

paragraph 7 nonetheless shows the parties intended to exclude

performance royalties from paragraph 22’s revenue-sharing

provision. Paragraph 7 sets forth the “royalties” FOM must pay

plaintiffs “with respect to each composition.” The paragraph

requires FOM to pay a 50 percent royalty for most forms of

income generated from the exploitation of the composition,

including mechanical rights, synchronization rights and foreign

income, but clarifies “that the Writer shall not be entitled to

share in any sum or sums received by the Publisher from [any

PRO] which pays performance fees directly to songwriters.”

Paragraph 7(f) then reiterates that FOM shall not be required to

pay “royalties earned by reasons of the public performances of the

23

composition; said royalties being payable only by [the Writer’s

PRO].”

The language in paragraph 7 does not render plaintiffs’

proposed interpretation of the 1972 Agreement unreasonable.

Paragraph 7 and paragraph 22 address two distinct types of

payments that FOM must pay to plaintiffs: royalty payments

(paragraph 7) and a revenue-sharing payment (paragraph 22).

The language in paragraph 7 that precludes plaintiffs from

sharing in FOM’s “performance income” can be reasonably

interpreted as applying only to the type of payment described in

paragraph 7, namely royalty payments. Paragraph 7 does not

include any language stating that the exclusion of “performance

fees” extends to paragraph 22’s revenue-sharing provision.

Moreover, the first clause of paragraph 22 directs that the

revenue-sharing payment described therein is to be paid “In

addition to the royalties provided for in Paragraph 7.” The fact

that plaintiffs are not entitled to receive royalty payments on

FOM’s performance income does not necessarily preclude them

from receiving a portion of FOM’s performance income based on

the revenue-sharing payment described in paragraph 22, which is

to be paid “in addition to” whatever royalties are due under

paragraph 7.

FOM argues that plaintiffs’ proposed interpretation of

paragraph 22 would render “paragraph 7’s specific exclusion of

. . . public performance royalties . . . meaningless.” As explained

above, however, under plaintiffs’ interpretation, the exclusionary

language in paragraph 7 serves to clarify that while FOM must

pay plaintiffs a 50 percent royalty on most forms of income, the

performance income FOM receives from its PRO is not subject to

that requirement. Paragraph 22, in turn, provides that “in

24

addition to” the royalties described in paragraph 7, plaintiffs are

entitled to a certain share (30 percent after various

administrative costs and fees are deducted) of “all monies [FOM]

actually earned and received” from the sale or licensing of the

music compositions. Thus, the language in paragraph 7 and 22

are both given effect: the former provision establishes that FOM

does not have to pay plaintiffs a 50 percent royalty on the

performance income it receives from its PRO, while the latter

provision establishes that such income is nonetheless subject to

the revenue-sharing formula set forth in paragraph 22.

Plaintiffs’ proposed interpretation is also supported by

their extrinsic evidence. First, as explained in Clainos’s

declaration, prior to signing the 1972 Agreement, the parties

entered into a MOA that summarized the terms of what they had

agreed to. The MOA expressly states that the signatories agreed

that it “reflect[ed]” the terms of the agreement that were to be

included in their “formal contract[].” Paragraph 3(b) of the MOA

sets forth the royalties FOM agreed to pay plaintiffs, and

includes language clarifying that plaintiffs were to obtain “any

and all performance moneys” from ASCAP, and not from FOM.

Paragraph 3(e) of the MOA sets forth the revenue participation

payment, directing that “in addition to the foregoing, the writer

shall receive . . . 30% of [FOM’s] share of publisher income (after

deduction for collection fees, direct costs and administration

fees.)” Paragraph 3(e) has no language excluding income that

FOM received from performance royalties. Considered together,

paragraph 3(b) and 3(e) support plaintiffs’ assertion that the

parties intended FOM would not be required to pay royalties on

performance income, but would nonetheless be required to

25

include such income when calculating the revenue-sharing

payment.

Nicholas Clainos’s declaration lends further support to

plaintiffs’ interpretation. Clainos asserted that during his

negotiations of the 1972 Agreement with Steve Gold, then a co-

owner of FOM, Gold specifically acknowledged that the parties

had agreed the revenue-sharing provision would apply to “100%

of all revenue the publisher received, including the publisher’s

public performance revenue.” Clainos further asserted that he

and Gold discussed that, as used in paragraph 22, the term “‘all

monies’ in the definition of ‘Composition Gross Receipts’ . . .

encompassed [FOM’s] share of public performance revenues that

were otherwise excluded in connection with the calculations

under paragraph 7.”

Michael Perlstein’s expert testimony regarding industry

usage and custom also provides support for plaintiffs’

interpretation. According to Perlstein, at the time the 1972

Agreement was negotiated, it was customary in the music

publishing industry that a provision entitling a writer to a share

of the publisher’s income would include income generated from

performance royalties. Indeed, Perlstein noted that in his 50

years of drafting, negotiating and evaluating music publishing

agreements, he had never seen a single agreement that contained

a revenue sharing provision that excluded performance royalties.

This testimony suggests plaintiffs’ proposed interpretation

accords with the industry customs and practices that were in

effect at the time the contract was negotiated. 7

7 In its written order, the trial court concluded Perlstein’s

testimony amounted to his own “legal opinions as to the meaning

of paragraph 22,” and was therefore not relevant to the

26

Finally, the plaintiffs submitted accounting statements

showing that, as recently as 2011 and 2013, FOM had paid

plaintiffs a share of the income it derived from performance

royalties. 8 These accounting statements provide circumstantial

evidence that FOM believed the 1972 Agreement entitled

plaintiffs to share in performance royalties, which again accords

with plaintiffs’ proposed interpretation. (See Universal Sales

interpretation of the contract. Perlstein, however, did not merely

relate his subjective interpretation of paragraph 22. Rather, he

provided expert testimony regarding the music publishing

industry’s customs and usage pertaining to revenue-sharing

provisions such as the one set forth in paragraph 22. Specifically,

Perlstein asserted that such provisions customarily applied to all

forms of publisher revenue, including performance royalties the

publisher obtains from a public rights organization. This custom

and usage evidence was relevant to aid in the interpretation of

the contract. (See Howard Entertainment, Inc. v. Kudrow (2012)

208 Cal.App.4th 1102, 1119-1121 [trial court erred in excluding

expert declaration stating that management agreements in the

entertainment industry customarily entitled managers to post-

termination compensation for any engagements that were

entered into while the agreement was in effect]; Hayter Trucking,

Inc. v. Shell Western E&P, Inc. (1993) 18 Cal.App.4th 1, 20

[“parol evidence of custom and usage is similarly admissible to

interpret the written words”].)

8 As discussed above (see ante, pp. 15-16, 18), plaintiffs’

expert in music accounting, Fred Wolinsky, submitted these

accounting statements in support of his declaration stating that

FOM had paid plaintiffs a share of performance royalties for

decades, before suddenly changing course in 2014. The trial

court sustained objections to Wolinsky’s “course of performance”

testimony, but overruled objections to the actual accounting

statements he submitted with the declaration.

27

Corp. v. California Press Mfg. Co. (1942) 20 Cal.2d 751, 761

[“when a contract is ambiguous, a construction given to it by the

acts and conduct of the parties with knowledge of its terms,

before any controversy has arisen as to its meaning, is entitled to

great weight”]; Enos v. Armstrong (1946) 75 Cal.App.2d 663, 669

[“where the terms are . . . capable of more than one reasonable

construction, the practical construction put upon the instrument

by the parties thereto, as evidenced by their conduct under it,

furnishes one of the most reliable means of arriving at its

meaning and their intention when executing it”].)

In sum, contrary to the trial court’s conclusion, the

language of the 1972 Agreement, considered in conjunction with

plaintiffs’ extrinsic evidence, demonstrates that the contract is

reasonably susceptible to the plaintiffs’ proposed interpretation.

C. Plaintiffs’ Interpretation Is More Reasonable than

the Interpretation FOM Has Proposed

Having concluded that the parties’ agreement is reasonably

susceptible to plaintiffs’ proposed interpretation, we move to the

“second step – interpreting the contract.” (Wolf II, supra, 114

Cal.App.4th at p. 1351; see also Southern Cal. Edison, supra, 37

Cal.App.4th at pp. 847-848 [“If the court decides the language is

reasonably susceptible to the interpretation urged, the court

moves to the second question: what did the parties intend the

language to mean?”].) Because the parties’ summary judgment

materials do not contain any conflicting extrinsic evidence (FOM

having elected not to submit any extrinsic evidence), we interpret

the contract as a “question of law subject to our independent

construction.” (Winet, supra, 4 Cal.App.4th at p. 1160; Wolf,

supra, 162 Cal.App.4th at p. 1134 (“Absent a conflict in the

28

evidence, the interpretation of the contract remains a matter of

law”].)

“‘The goal of contractual interpretation is to determine and

give effect to the mutual intention of the parties. [Citations.]’

[Citation.] Thus, ‘a “court’s paramount consideration . . . is the

parties’ objective intent when they entered into [the contract].”

[Citations.]’ [Citation.] ‘A contract must be so interpreted as to

give effect to the mutual intention of the parties as it existed at

the time of contracting, so far as the same is ascertainable and

lawful.’ [Citation.] ‘“If a contract is capable of two constructions

courts are bound to give such an interpretation as will make it

lawful, operative, definite, reasonable, and capable of being

carried into effect. . . ” [Citations.]’ [Citation.]” (Khavarian

Enterprises, Inc. v. Commline, Inc. (2013) 216 Cal.App.4th 310,

318.) “‘In sum, courts must give a “‘reasonable and commonsense

interpretation’” of a contract consistent with the parties’ apparent

intent.’ [Citation.]” (Department of Forestry & Fire Protection v.

Lawrence Livermore National Security, LLC (2015) 239

Cal.App.4th 1060, 1066.)

Based on the language of the parties’ agreement, and aided

by the extrinsic evidence in the record, we conclude that

plaintiffs’ interpretation of the 1972 Agreement is the most

reasonable. As explained above, paragraph 22 does not include

any language indicating that income derived from performance

royalties is to be excluded from “Composition Gross Receipts,” the

base amount used to determine plaintiffs’ revenue sharing

payment. Instead, Composition Gross Receipts is specifically

defined to include “all monies actually earned and received” in

connection with the sale and licensing of the music compositions.

Had the parties intended to exclude performance royalties from

29

Composition Gross Receipts, we expect that they would have

included language to that effect.

Paragraph 7’s exclusion of performance-based income from

FOM’s royalty payment requirements does not compel a different

result. Paragraph 7 describes the royalties FOM is required to

pay plaintiffs on various types of income, and expressly excludes

royalties on performance-based income. Paragraph 22, in

contrast, describes a separate revenue participation payment

that is to be paid “in addition to the royalties provided for in

Paragraph 7.” Unlike paragraph 7, paragraph 22 does not

exclude performance royalties from the category of income that is

subject to revenue participation. The fact that the parties

expressly excluded performance-based revenue from the royalty

payments described in paragraph 7, but did not include any such

exclusion in paragraph 22, suggests that they intended to include

performance royalties in the revenue-sharing provision.

This interpretation is consistent with the plaintiffs’

uncontroverted extrinsic evidence, including: (1) Clainos’s

statements that the FOM representative who negotiated the 1972

Agreement (Steve Gold) specifically acknowledged performance

royalties were to be included in Composition Gross Receipts; (2)

Perlstein’s testimony that it was customary in the music industry

for publishers to include performance royalties in a revenue-

sharing provision like the one in paragraph 22; and (3) FOM’s

own statements from 2011 and 2013, which indicate that it had

previously paid plaintiffs a share of its performance royalties.

For the purposes of summary judgment, FOM chose not to

submit any extrinsic evidence that contradicted or otherwise

responded to plaintiffs’ extrinsic evidence. Instead, FOM relied

solely on the text of the 1972 Agreement, asserting that it

30

unambiguously excluded performance royalties from the revenue-

sharing provision described in paragraph 22. For the reasons

discussed above, we reject that assertion, and conclude that the

text of the 1972 Agreement, interpreted with the aid of the

extrinsic evidence currently in the record, shows that the parties

intended that performance royalties would be included in

paragraph 22’s revenue-sharing provision. We therefore reverse

the trial court’s judgment.

DISPOSITION

The judgment is reversed. Appellants shall recover their

costs on appeal.

ZELON, J.

We concur:

PERLUSS, P. J.

FEUER, J.

31

Filed 4/16/19

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

HAROLD BROWN, et al., B278949

Plaintiffs and Appellants, (Los Angeles County

Super. Ct. No. BC559691)

v.

ORDER CERTIFIYING

GERALD GOLDSTEIN, et al. OPINION FOR

PUBLICATION

Defendants and Respondents.

THE COURT:

The opinion in this case filed March 27, 2019 was not

certified for publication. On the court’s own motion the opinion

meets the standards for publication specified in California Rules

of Court, rule 8.1105(c); and

IT IS HEREBY ORDERED that the words “Not to be

Published in the Official Reports” appearing on page 1 of said

opinion be deleted and the opinion be published in the Official

Reports.

____________________________________________________________

PERLUSS, P. J., ZELON, J., FEUER, J.