Septembertide Publishing, B.v. v. Stein & Day, Inc

884 F.2d 675 (2d Cir. 1989)

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Nature of the Case

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Facts

Harry Patterson owns S & L Enterprises and Septembertide Publishing, B.V. (P). Patterson is the author of numerous literary works, usually under pseudonyms. He wrote the novel 'Confessional' (the Work) under the pseudonym 'Jack Higgins.' S & L granted exclusive licensing rights to Stein & Day (D), to publish a hardcover edition of the Work in the United States. In October 1985 P took over as successor-in-interest to S & L's rights in that contract. D was obligated to pay an advance against future royalties of $375,000 in three equal installments of $125,000. D was obliged to account semi-annually, to pay royalties, and to pay its share of sublicensing income, after recouping its advances. Sublicensing proceeds 'from the sale or license of reprint rights' in media other than hardcover publication were to be divided two-thirds to P, and one-third to D. The first two advances were made, but the third one, due on January 15, 1986, was not paid. As of December 31, 1985, D owed P $152,030.31. D became insolvent. Almost simultaneously, D entered into a contract with New American Library (D1), giving D1 the rights to publish the paperback edition. D1 agreed to advance D $750,000 in five installments. By July 14, 1986, D had received $385,500. On November 20, 1985, D had entered into a security agreement with Bookcrafters U.S.A., Inc. (D2), assigning all its contract rights and accounts to D2. D2's search of UCC filings uncovered no evidence of P's interest in payments from D1 to D. On March 6, 1986 P terminated D's rights in the Hardcover Agreement because the final $125,000 payment due in January had not been made. P then requested in May 1986 that D1 forward directly to it all future payments due D under the Paperback Agreement. D1 refused. P sued D and D1. D2 then intervened, alleging that it had prior and superior right to the proceeds of the Paperback Agreement by virtue of its security agreement with D. D1 filed an interpleader by way of counterclaim naming all claimants. The monies were deposited into court sometime in December of 1987 by court order P's claim for the missing final $125,000 payment was denied because of D's bankruptcy. It held P to be a third-party beneficiary of the Paperback Agreement and P's rights to two-thirds of D1 payments under that agreement were superior to D2's secured creditor rights, subject only to a determination that D had recouped its advance. D2 was awarded the remaining one-third of the payments. Both parties appealed.