Erhlich v. Diggs

Brief Fact Summary.

The validity of an oral contract between a musician and a music producer was at issue.

Synopsis of Rule of Law.

California law "exempts contracts that are terminable within one year by either party from the Statute of Frauds." California has held "that employment contracts that are terminable at the will of either party fall outside the bar."

Facts.

The Plaintiff, David M. Ehrilich (the "Plaintiff"), a music producer, seeks a portion of the Defendant, Robert Diggs' (the "Defendant") earnings from a rap group called Gravediggaz.  The Plaintiff entered an agreement with Gravediggaz to be their exclusive representative in negotiating a record contract with a major record label.  As a result of the Plaintiff's efforts, the Gravediggaz signed a contract with Gee Street Records.  Gee Street was given an option "for the recording service of defendant as a solo artist."  The Gravediggaz hired the Plaintiff as their manager in August of 1993.  This was an oral agreement (the "Management Agreement").  The Plaintiff alleges pursuant to this agreement he was to receive "fifteen percent of the gross earnings of the Gravediggaz and each of its member 'all entertainment-related employment, engagements or agreements commenced or entered into' while he served as manager of the group."  In addition, the Management Agreement was terminable by either plaintiff or the group at any time."  "Plaintiff contends that the duties of a manager, including the duty to advise and counsel each member of a group individually, are universally known in the music recording industry and that these understandings were shared by all parties, including defendant, at the time the oral Management Agreement was made. Moreover, according to plaintiff, it is standard industry practice that the manager of a musical group is entitled to commissions on entertainment-related work by each member of the group, whether performed individually or performed as a group member."  On December 20, 1996, the Defendant entered into a written contract with Gee Street records to be a solo recording artist.  The Defendant argues that this agreement with Gee Street records was independent from the agreement the Plaintiff helped Gravediggaz procure.  The Plaintiff disagrees and argues that they were "inextricably linked."

Issue.

Is the oral Management Agreement between the Plaintiff and the Defendant enforceable or does it violate the Statute of Frauds? 
•    Is the agreement "too indefinite to be enforced?"

Held.

It is enforceable and not violative of the Statute of Frauds.  The court first discusses how on their face New York and California's Statute of Frauds are identical, but the respective state courts have applied them in different ways.  New York's Statute of Frauds has "been interpreted to bar enforcement of an employment contract requiring commission payments unless after the plaintiff has performed, 'the defendant can unilaterally terminate the contract, discharging all promises made to the plaintiff including the promise to make commission payments.' " California has held "that employment contracts that are terminable at the will of either party fall outside the bar."  An oral contract under California law is unenforceable "only if it expressly precludes performance within one year or by its terms cannot possibly be performed within one year."  California courts have interpreted this to "exempt contracts that are terminable within one year by either party from the Statute of Frauds."  In other words "[a] contract … may be taken out of [the statute of frauds's] operation by the fact that a party (or at least a defendant) may rightfully terminate it within a year."  Under California law, the oral management Agreement as alleges is not barred by the Statute of Frauds.  New York's Statute of Frauds has been interpreted differently with the key being whether "the defendant can unilaterally terminate the contract, discharging all promises made."  Here, the Defendant has an ongoing obligation to the Plaintiff that he cannot terminate, which under New York law is clearly in the Statute of Frauds.  The court concluded California law governed and the oral Management Agreement was not barred by California's statute of Frauds.
•    The agreement is not void for indefiniteness.

Discussion.

This case gives the student an interesting look at how courts in two states interpret a facially identical Statute of Frauds provision in two entirely different ways.