Funkadelic Master Sound Recordings Can Be Involuntarily Transferred to a Court-Appointed Receiver to Satisfy Judgment

by McDermott Will & Emery

Hendricks & Lewis PLLC v. Clinton

Addressing the issue of whether a lower court abused its discretion by appointing a receiver and authorizing the sale of master sound recordings to satisfy monetary judgments, the U.S. Court of Appeals for the Ninth Circuit affirmed the lower court’s decision, finding that the Copyright Act did not protect the defendant from the involuntary transfer of his copyrighted works because the defendant was not the original author of the works.  Hendricks & Lewis PLLC v. Clinton, Case No. 13-35010 (9th Cir., June 23, 2014) (Christen, J.).

Hendricks & Lewis (Hendricks) is a law firm that performed legal services for George Clinton.   Clinton failed to pay Hendricks for all legal fees incurred.  After securing an arbitration award, Hendricks petitioned for and received judgment from the lower court confirming the arbitration award.

Clinton later sued Hendricks for legal malpractice.  Hendricks asserted judgment collection counterclaims and moved for an order authorizing the sale of master sound recordings to satisfy judgment that had been entered.  Hendricks also filed a separate action requesting appointment of a receiver and an order directing the assignment of the recordings to the receiver.  Hendricks’ counterclaims and later action were consolidated.  The district court appointed a receiver, assigned the rights in the recordings to the receiver and authorized the sale of the recordings by the receiver to satisfy the judgment, if necessary.  Clinton appealed.

The 9th Circuit found that Clinton’s copyrights in the sound recordings were subject to execution to satisfy judgments entered against him.  Federal Rule of Civil Procedure 69(a), which governs execution proceedings, states that execution proceedings are governed by state law, unless a federal statute governs.  Washington law states that “all property” is subject to execution, and the 9th Circuit found no federal statute that directly addressed whether copyrights are subject to execution to satisfy a judgment.  Relying on the historic kinship between patent law and copyright law, the court relied on a case involving patents to conclude that copyrights, like patents, are a form of intangible personal property that are subject to execution.

The 9th Circuit rejected Clinton’s argument that § 201(e) of the Copyright Act protects Clinton’s copyrights from Hendricks’ judgment collection efforts.  This statute provides that “an individual author’s” ownership of a copyright cannot be involuntarily transferred if it “has not previously been transferred voluntarily” by the author.  Here, the court found that Clinton was not the original author of the sound recordings because he signed a “works made for hire” contract with Warner Bros. that made Warner Bros. the original author.  The Copyright Act provides that, in the case of a work made for hire, the person for whom the work was made is considered the author.  Further, the court found that, even if Clinton were the author for purposes of § 201(e), he voluntarily transferred his rights to Warner Bros., thereby fully nullifying the applicability of that statutory provision.

The 9th Circuit also found that the lower court did not abuse its discretion by appointing a receiver to manage or sell ownership of Clinton’s sound recording copyrights.  The 9th Circuit found that a receiver may be appointed after judgment, in order to give effect to the judgment, if it is reasonably necessary and other remedies are not available or not adequate.  The 9th Circuit found that the lower court’s solution of appointing a receiver and having the receiver attempt to use the master sound recordings to satisfy judgment, without sale if possible, was not an abuse of discretion and was reasonably necessary.  Given the prior litigation history, the 9th Circuit found that this solution was the only adequate solution to secure ample justice for the parties.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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