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EMI Entertainment World, Inc. v. Karen Records

District court vacates $100,000 judgment for copyright infringement, finding that parent company did not have standing to bring claim on behalf of subsidiaries that owned copyrights and court did not have subject matter jurisdiction.

Plaintiff EMI Entertainment World, Inc., brought a copyright infringement action against defendants Karen Records, Inc.; Karen Publishing Inc.; and their owners, Isabel Rodriguez and Bienvenido Rodriguez, for their use on records of four musical compositions that EMI purported to own. The court previously granted EMI partial summary judgment and awarded plaintiffs a $100,000 judgment for defendants’ willful copyright infringement.

Defendants moved to set aside the judgment pursuant to Federal Rule 60 on the grounds that newly discovered evidence showed that EMI had no direct ownership interest in the copyrights, that subsidiaries of EMI that were never joined in the action owned the copyrights, and that EMI lacked standing to bring the lawsuit and the court lacked subject matter jurisdiction to hear the case. The district court granted defendants’ motion to set aside the judgment, vacated the judgment, and dismissed EMI’s complaint.

At the outset, the court noted that a district court may set aside a judgment under Rule 60(b)(1) because of mistake and under Rule 60(b)(4) when the judgment is void, as in the case of the court rendering the judgment lacking jurisdiction. In order to prevail under Rule 60, a movant must demonstrate both that one of the enumerated grounds applies and that it has a meritorious claim.

EMI did not dispute that it did not have and never had direct ownership of any of the copyrights at issue in the lawsuit. Rather, it argued that its wholly owned subsidiaries owned the copyrights at issue and that EMI was authorized to act on their behalf. The court rejected this argument, finding that, in the Second Circuit, a parent company lacks standing to bring claims on behalf of its subsidiary. A parent corporation cannot create a subsidiary, the court explained, and then ignore its separate corporate existence whenever it would be advantageous to the parent. If a party lacks standing, the court lacks subject matter jurisdiction over the case.

The court held that both Rules 60(b)(1) and 60(b)(4) provided the bases to vacate the judgment. The mistake in this case was that the court and the parties assumed that the court had jurisdiction based on EMI’s representations that it was the owner of the copyrights at issue. Although defendants previously had admitted that EMI controlled the copyrights at issue, the court found that a party may not waive standing and a court must address the issue regardless of whether the parties contest it. The court also concluded that the judgment was also void because the court did not have jurisdiction over EMI.

EMI’s attempt to join its subsidiaries as parties at this stage of the proceeding was ineffective, according to the court, because joinder must be made within a reasonable time after an objection is raised and the party must have a reasonable basis for naming the wrong party at the outset. Defendants alleged that they alerted EMI as to the jurisdictional defect one year prior and that EMI directed them in circles – to the original copyright notices and other sources – for months. EMI did not attempt the joinder within a reasonable time, according to the court, because EMI’s counsel, who had represented EMI throughout the entire course of the litigation, since 2005, did not seek to remedy the situation. In addition, the court noted that EMI knew the identities of the real parties in interest since the initiation of the lawsuit, as demonstrated in the copyright papers plaintiff submitted to the court, and failed to provide a reasonable basis for failing to name the subsidiaries as parties initially when it brought suit.

The court also concluded that since EMI lacked standing to bring the case, defendants had a meritorious defense that met the 60(b) requirement.