USDC S.D. New York, January 10, 2008
Members of the Allman Brothers Band sued their record company for breach of contract, claiming that the record company failed to pay royalties owed to them. The district court granted the record company’s motion for summary judgment on the grounds that the plaintiffs’ claims were time-barred by the incontestability and limitations clauses in the recording contract.
The contract contained two separate timing or limitations provisions. First, plaintiffs were required to object in writing to any royalty statement within two years of its issuance, or else be barred from contesting it. The court held that such "incontestability clauses" have been repeatedly upheld as valid. Second, the contract provided that plaintiffs could only bring an action in connection with any royalty accounting or payment within three years from the date of such statement. The court explained that courts applying New York law routinely uphold the enforceability of contractual limitations provisions in recording contracts, as long as there is no proof of fraud, duress, or other wrongdoing. In addition, New York C.P.L.R. § 201 specifically states that an action must be commenced within the prescribed statute of limitations unless a shorter time is prescribed by written agreement.
Finally, the court rejected the plaintiffs’ argument that the record company had waived the timing provisions or was equitably estopped from enforcing them because it had “lulled” the plaintiffs into delaying their action by allowing the plaintiffs to conduct a 20-month audit. The court concluded that the plaintiffs chose to commence a discretionary audit rather then initiate a legal action: “[i]t was incumbent on the Plaintiffs to protect their rights by initiating a timely action, and UMG’s [conduct allowing the 20-month audit] did not reasonably lull or mislead Plaintiffs into a false sense of security.”