Meyers v. Cole ( 1998 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
MICHAEL MEYERS, )
)
Plaintiff/Appellant, ) Davidson Chancery No. 95-2518-I
)
vs. )
)
MARK A. COLE,
Defendant/Appellee.
FILED )
)
)
Appeal No. 01A01-9710-CH-00543
August 19, 1998
Cecil W. Crowson
Appellate Court Clerk
APPEAL FROM THE CHANCERY COURT OF DAVIDSON COUNTY
AT NASHVILLE, TENNESSEE
THE HONORABLE IRVIN H. KILCREASE, JR.
For the Plaintiff/Appellant: For the Defendant /Appellee:
Stephen M. Miller George E. Copple, Jr.
Nashville, Tennessee Nashville, Tennessee
REMANDED
HOLLY KIRBY LILLARD, JUDGE
CONCUR:
W. FRANK CRAWFORD, P.J., W.S.
ALAN E. HIGHERS, J.
OPINION
This case involves the dissolution of a partnership formed to create and sell music. The trial
court determined the partners’ respective rights in some properties and ordered some items sold. We
remand.
Plaintiff/Appellant Michael Meyers ("Meyers") and Defendant/Appellee Mark Cole ("Cole")
formed an oral partnership in late 1992 named MusicArts. The partnership initially produced and
sold musical "jingles" for use in advertising. Meyers wrote the jingles to meet the advertising needs
of clients solicited by Cole. After some time, Cole tried to expand the focus of the partnership to
include the creation of video footage to correspond with the jingles. This led to a rift between the
partners.
The dispute intensified in early February 1995 and culminated in a series of faxes and
telephone conversations between the parties. On February 13, 1995, Meyers advised Cole that "[a]s
of today, you don't represent me in a business capacity. . . . I think a clean break is necessary at this
time." Meyers and Cole subsequently divided the partnership's business equipment between them.
They did not attempt to dispose of the name MusicArts, the customer list, or the audio and video
tapes containing edited music/commercials (“the DAT tapes”).
Meyers filed suit on August 15, 1995, seeking a declaratory judgment as to the parties’
respective rights. Cole filed an answer and counterclaim seeking a complete accounting of the
revenues and expenses of the partnership. The trial court referred the matter to the Clerk and Master
for a full hearing. The trial court adopted the Clerk and Master's findings as the judgment of the
court.
The trial court found that the parties had been acting under an oral partnership agreement.
The partnership dissolved on February 13, 1995 when Meyers withdrew, but did not terminate on
that date. Eight months after dissolution, while this suit was pending, Cole created advertising using
works developed during the partnership for two former clients of the partnership. The trial court did
not require Cole to account to Meyers or to the partnership for the income from these projects. The
trial court found, however, that Meyers had breached his fiduciary duty toward Cole by not sharing
profits from jobs begun before the dissolution, but completed afterwards. The court further found
that the DAT tapes should not be divided or copied and ordered them to be sold and the proceeds
divided equally between the parties. At the sale for the DAT tapes, Cole bid $100. Meyers objected
to the sale because the court had not determined the rights of the respective parties in the tapes. He
also refused to bid at the sale because he claimed the sale was not “commercially reasonable.”
Meyers moved for a stay of the sale of the tapes pending appeal, and this motion was granted.
On appeal, Meyers argues that the trial court’s findings are incomplete. Meyers contends
that the trial court failed to require Cole to account for transactions which occurred after this
litigation began, involving works developed during the partnership. Meyers notes that Cole’s
transactions with former MusicArts clients involved music that Meyers created during the parties’
partnership. Meyers argues that, consequently, Cole is accountable to Meyers or to the partnership
for the profits from these projects. Meyers also claims that the trial court erred in ordering the sale
of the DAT tapes without first determining who owned the copyrights to the creative works on the
tapes.
Cole initially argues that Meyers is prohibited from raising the issue of Cole’s post-
dissolution projects because the order of reference to the Master did not include that issue. While
the order of reference did not list Cole’s projects as an issue to be determined, the issue was in fact
considered by the Master and the trial court. The Master’s report indicates that it considered “the
amount of funds owing either party after winding up of partnership affairs.” Moreover, Meyers
noted this issue in his objections to the Master’s report. Thus, we find the issue of what funds, if
any, Cole owed to Meyers for use of the music created during the partnership was presented to the
trial court and may be raised on appeal.
Cole argues that the money collected from Meyers’ jobs was partnership property because
those projects were “in the pipeline,” or in progress, as of the date he alleges the partnership
terminated, February 13, 1995. Cole asserts that he did not solicit or perform any work for former
MusicArts clients until approximately two months after this lawsuit was filed and at least eight
months after the alleged termination. Consequently, Cole argues that profits from these projects did
not have to be accounted for during the winding up of the partnership.
In this appeal, Meyers asks this Court to review the trial court’s decision regarding profits
Cole received on projects begun after dissolution and finished before termination of the partnership.
“A concurrent finding of fact by a Master and a trial court is conclusive on appeal, except where the
finding . . . is based on an error of law or a mixed question of fact and law, or where the factual
finding is not based on material evidence.” Aussenberg v. Kramer, 944 S.W.2d 367, 370 (Tenn.
App. 1996) (citing Archer v. Archer, 907 S.W.2d 412, 415 (Tenn. App. 1995)). The issues raised
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by Meyers in this appeal are mixed questions of fact and law, subject to review. Id. (citing Bubis v.
Blackman, 58 Tenn. App. 619, 632, 435 S.W.2d 492, 498 (1968)); see Aaron v. Aaron, 909 S.W.2d
408, 410 (Tenn. 1995). In this case, no presumption of correctness attaches to the trial court’s
findings, and “this Court has great latitude to determine whether findings as to mixed questions of
fact and law made by the trial court are sustained by probative evidence on appeal.” Aaron v. Aaron,
909 S.W.2d 408, 410 (Tenn. 1995).
The rules governing dissolution and winding up of partnerships are well settled in Tennessee:
Upon dissolution, a withdrawing partner who has not wrongfully dissolved the
partnership may require a winding up of the partnership affairs, and share
proportionately in both profits and losses until termination, when all partnership
affairs are settled. In this event, the respective interests of the partners in the
partnership, including profits and losses, do not change until final settlement
(termination).
Shepherd v. Griffin, 929 S.W.2d 336, 343 (Tenn. App. 1995) (citation omitted) (citing Shepherd
v. Griffin, 776 S.W.2d 119, 122 (Tenn. App. 1989)). “Dissolution is caused: . . . [b]y the express
will of any partner” when the partnership is indefinite in term. Tenn. Code Ann. § 61-1-130(1)(B)
(1989). In this case, the partnership dissolved on February 13, 1995, the date on which Meyers told
Cole that Cole no longer represented Meyers in the business. However, dissolution does not
terminate the partnership. See Shepherd v. Griffin, 776 S.W.2d 119, 121 (Tenn. App. 1989). In this
case, there was no partnership agreement controlling the dissolution, distribution of assets or
accounting upon dissolution of the partnership. Consequently, the Uniform Partnership Act governs.
Hoppen v. Powell, 600 S.W.2d 736, 738 (Tenn. App. 1980).
Under the Tennessee Uniform Partnership act, the partnership continues until the winding
up of the partnership is completed, and the partnership is terminated. Tenn. Code Ann. § 61-1-129
(1989). The process of winding up includes an accounting and distribution of the partnership assets.
“Until termination of the partnership the interests of the partners in partnership assets, profits,
liabilities and losses do not change, even though they exist at or occur after dissolution.” Shepard,
776 S.W.2d at 122 (citing Young v. Cooper, 30 Tenn. App. 55, 203 S.W.2d 376, 386 (1947); 20
Tenn.Jur. Sec. 43). The partners’ interests “remain unchanged until the partnership is terminated.”
Id. (citing 59A Am.Jur.2d Partnerships, § 809 (1987)).
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Therefore, the partnership did not terminate in February of 1995. Termination does not occur
until the assets are equitably distributed. Tenn. Code Ann. § 61-1-129 (1989). In this case,
termination has not yet occurred, in part due to the ongoing litigation. An unresolved issue of law
and fact remains as to Cole’s use of the works created by Meyers during the term of the partnership
in two projects undertaken on Cole’s behalf, the Burford project and the Cunningham project. In
the Burford project, Cole used a jingle and/or music created during the partnership which had been
previously used in another television commercial for that client. The new advertisement
incorporated elements of the earlier project and carried the same theme. In the Cunningham project,
Cole made minor changes to a prior MusicArts television ad for the same client. The Cunningham
project also utilized works created during the partnership. In addition, Cole acknowledged that he
had assumed that he could continue to use the DAT tapes for solicitation of business independent
of the partnership.
The resolution of the issue involving Cole’s use of works created by Meyers during the
partnership depends in part on another issue: the rights of the parties in the copyrights to the
copyrightable works developed during the partnership. Meyers contends that the trial court did not
determine what rights the parties or the partnership acquired in the copyrights to the music or
commercials recorded on the DAT tapes.
Meyers raised the issue after the report of the Clerk and Master was issued. The trial court
considered the DAT tapes to be a partnership asset because it ordered the tapes sold and the proceeds
divided evenly. By implication, then, the trial court must have considered the partnership to be the
owner of the copyrights to the tapes. This, too, is a mixed issue of law and fact, properly reviewable
by this court. See Aussenberg v. Kramer, 944 S.W.2d at 369.
Copyrights are governed by federal copyright law, and any provision of the Copyright Act
of 1976 (“the Act”), 17 U.S.C.S. § 101, et seq. (1994), which deals with the issue at hand would
preempt state law. § 301(a). The provisions of the Act which deal most closely with the issue in this
case concern the doctrines of (1) a “work made for hire” in § 101 and § 201(b), and (2) transfer of
ownership in a copyright in § 201(d) and § 204(a). Creative works developed during the partnership
could be deemed partnership property under one of these two doctrines.
Section 101 reads in pertinent part that “[a] ‘work made for hire’ is--(1) a work prepared by
an employee within the scope of his or her employment.” § 101. In the absence of an express written
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agreement, a “work made for hire” is owned by the employer. 17 U.S.C.S. § 201(b). In Community
for Creative Non-Violence v. Reid, 490 U.S. 730, 109 S. Ct. 2166, 104 L. Ed. 2d 811 (1989), the
Court indicated that the phrase “scope of employment” should be interpreted according to the
“general common law of agency, rather than on the law of any particular State.” Id. at 740. The
Court listed factors relevant to the issue of whether a hired party is an employee under agency law.
See id. at 751-52. These factors include the skill required to create the work, the source of the
instrumentalities and tools used to create the work, the location of the work, the duration of the
relationship between the parties, whether the hiring party has the right to assign additional projects
to the hired party, the extent of the hired party’s discretion over when and how long to work, the
method of payment, the hired party’s role in hiring out and paying assistants, whether the work is
part of the regular business of the hiring party, whether the hiring party is in business, the provision
of employee benefits, and the tax treatment of the hired party. Id. Community did not involve a
partnership, and it is unclear whether these factors would be pertinent in the context of a partnership.
We found no cases determining whether the “works made for hire” doctrine applies to works
created by a partner during the partnership. Consequently, we look to caselaw in analogous
situations. For example, Wheeler v. Hurdman, 825 F.2d 257 (10th Cir. 1987), involved the issue
of whether federal anti-discrimination laws (Title VII, ADEA, and FLSA), which protect
“employees,” should apply to a partner within the context of a general partnership.
The court in Wheeler reviewed the many ways in which the characteristics of a partner differ
from those of an employee, such as the right to share in profits and participate in management
decisions, the right to act as agent for the other partner, and unlimited personal liability for
partnership losses. It noted that the partner’s “participation in profits and losses, exposure to
liability, investment in the firm, partial ownership of firm assets, and her voting rights--plus her
position under the partnership agreement and partnership laws--clearly placed her in a different
economic and legal category.” Id. at 276. It ultimately determined that Congress intentionally used
the term “employee” in these statutes to exclude partners in a general partnership. Id. at 276.
This case involves an analogous situation. An employee who creates works for an employer
functions in a more protected position than a partner; he is shielded from unlimited personal liability
for the organization’s obligations. As in Wheeler, this fact is significant, as are the other
characteristics that distinguish an employee from a partner. The Copyright Act includes no
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indication that Congress intended the “works made for hire” doctrine to apply to works created by
a partner during the course of the partnership, and we decline to do so. Therefore, we hold that the
works created solely by Meyers are not “works made for hire” as defined in 17 U.S.C.S. § 101, and
that the partnership does not own the copyrights by virtue of this doctrine.
In the absence of application of the “works for hire” doctrine, the copyright to an original
work such as the music in this case “vests initially in the author or authors of the work.” 17 U.S.C.S.
§ 201(a). However, the copyright to the music created by Meyers could be owned by the partnership
if ownership was transferred to the partnership by agreement of the partners. Under the Copyright
Act, such a transfer would be valid only if the “instrument of conveyance, or a note or memorandum
of the transfer, is in writing and signed by the owner of the rights.” 17 U.S.C.S. §204(a).
There is little caselaw dealing with the ownership of the copyright on original works in the
context of a partnership. In Oddo v. Ries, 743 F.2d 630 (9th Cir. 1984), two parties entered into a
written partnership agreement to write a book. One partner agreed to provide the capital and
supervise the business end of the venture and the other agreed to write the book. Because of the
written partnership agreement, the Oddo court held that the partners were co-owners of the
partnership’s assets, including the copyright in the book.
In Konigsberg Int’l Inc. v. Rice, 16 F.3d 355 (9th Cir. 1994), the court discussed at length
the law regarding copyrights. In Konigsberg, two movie producers met over lunch with a popular
novelist. During the lunch meeting, they orally agreed that the novelist would create a manuscript
which could be developed further within several media. No written agreement was ever signed.
Later, a dispute arose concerning the copyright to the manuscript and a lawsuit was filed. The
Konigsberg court distinguished this situation from Oddo, in which there was a written partnership
agreement. The Konigsberg court construed § 204(a) of the Act as requiring a written agreement
which clearly divests the creator of a work of his copyright. Id. at 357-58. Therefore, Konigsberg
held that the oral partnership agreement was not sufficient to transfer ownership of a copyright to
the partnership. Accord Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 557 (9th Cir. 1990).
Under the Copyright Act and the reasoning in Konigsberg, in the absence of any evidence
that Meyers transferred in writing ownership of the copyright to the partnership, Meyers’ rights in
the works created solely by him during the partnership were not transferred to the partnership and
remain vested in Meyers. If both partners significantly contributed to creation of the music or
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commercials, under copyright law, they may be construed as co-owners of the copyrights to those
works. See 17 U.S.C.S. § 101 (definition of “joint work”); Oddo v. Ries, 743 F.2d at 633.
In this case, the record is insufficient for this Court to determine ownership of the copyright
to the works at issue. Consequently, we remand the case for the trial court to determine the
respective contributions of each partner to the creation of the copyrightable works during the term
of the partnership, whether there is written evidence of a transfer of the copyrights from either party
to the partnership, and any other issues pertinent to ownership of the copyrights. Once ownership
of the copyrights is determined, the trial court must determine the proper accounting of each partner
for the use of the music or commercials during the winding up of the partnership.
The cause is remanded to the trial court for further proceedings consistent with this Opinion.
Costs on appeal are assessed equally against Appellant and Appellee, for which execution may issue
if necessary.
HOLLY KIRBY LILLARD, J.
CONCUR:
W. FRANK CRAWFORD, P. J., W.S.
ALAN E. HIGHERS, J.
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