Health Communications, Inc. v. LLC (2011)

MEMORANDUM OF DECISION ON DEFENDANTS' MOTIONS TO STRIKE CERTAIN COUNTS OF THE 4th AMENDED COMPLAINT (# # 228 & 232)

This case is a contractual dispute between several parties to several different book publishing agreements, past and present.   It centers on a disagreement over the scope of the property rights created by those agreements.   The dispute involves the future right to republish and market certain short stories in new compilations, and possible compensation in royalties and damages to the plaintiff publishing company because that has already been done.   This lawsuit, and a companion matter in which this same group of defendants are suing this same plaintiff over related contractual issues,¹ will clarify once and for all the legal status of these previously published short stories, but only as to their use in this particular series of books.   The stories themselves are by many different authors, and they appeared individually in one form or another in different anthologies or compilations totaling over 175 different editions.   The books were published over a fifteen-year period in 40 different languages stretching back to the early 1990s, with many editions becoming best sellers in the process.   This is the series of books known as Chicken Soup for the Soul.²

There have been other proceedings between the parties.   Most notably, the court heard several days of testimony at an earlier evidentiary hearing on an injunction application by the plaintiff publishing company.   A lengthy memorandum of decision denying the requested relief was issued by this court.   See # 147.00. It is the law of the case, and the decision may be consulted for a number of detailed findings not repeated here.   But rather than construing the evidence necessary to support such an injunction in light of the applicable standards, the focus here is on the complaint itself, and only the complaint.   Now before the court is the defendants' joint motion to strike the two counts of the plaintiff's Fourth Amended Complaint, specifically those allegations sounding in conversion and statutory theft.   The issue is whether these contested Chicken Soup book publishing rights, which ostensibly arise out of certain contracts that HCI was a party to, are sufficiently specific and definite property rights as a matter of law to withstand a defense motion to strike the claims of conversion and statutory theft.   In other words, do the stories in question constitute “property” which may be alleged to be the subject of conversion or theft as a matter of law?

According to the complaint, Chicken Soup for the Soul was the brainchild of two men, defendants and co-authors Mark Victor Hansen and Jack Canfield.   What started as a single title in the early 1990s eventually grew into a line of profitable books over the years.   Hansen and Canfield produced the Chicken Soup series for approximately fifteen years, beginning with the first volume released in 1993 and continuing up through July 1, 2008.   During that time frame, the defendants also created a California based company to facilitate work on the series, the co-defendant Chicken Soup for the Soul Enterprises, Inc. (CSSE).  Canfield served as President and Chief Executive Officer of CSSE, while Hansen's title was “Chief Visionary Officer.”

The plaintiff, Health Communications, Inc. (HCI) is a Florida-based independent publisher in the field of inspirational, self-help and recovery books.   The plaintiff company is owned and operated by its president Peter Vegso.   Hansen and Canfield got involved with Vegso and his publishing house when the Chicken Soup series was a brand new idea, and when it was still an unknown, untested brand.   This was a fortuitous decision that would prove to be immensely profitable for HCI. Through a series of agreements with Hansen and Canfield stretching over approximately 15 years, HCI published the books in the Chicken Soup series from the series' inception in 1993 up to and including July 1, 2008.   That is when the final contract between the original parties to publish new Chicken Soup books expired.

The instant litigation was apparently triggered by the convergence of at least two factors.   The first was the change in the ownership of the Chicken Soup brand, with its sale by Hansen and Canfield in 2008, and a disagreement between HCI and the defendants, both buyer and seller, over the scope of the rights attached to that sale.   This is specifically as it relates to the database of short stories that had previously appeared in earlier Chicken Soup compilations that were published by HCI. The second factor was the 2008 expiration of HCI's contract to publish new Chicken Soup compilations.   The seeds for the conflict that led to this lawsuit began much earlier, however.   These proceedings initiated here in Connecticut are only the latest stop in a series of judicial interventions over the years in the Chicken Soup saga, including prior proceedings in state and federal courts in California.

In April 2008, with the end of their relationship with HCI approaching, Hansen and Canfield sold their rights to the Chicken Soup series.   The buyer was a newly created entity, the defendant Chicken Soup for the Soul Publishing, LLC (CSSP).  CSSP is a Connecticut based publishing company that was formed to acquire the assets of California based CSSE, including the rights to the Chicken Soup name and the various compilation copyrights connected with each book.   As both the new owner and publisher, CSSP instead of HCI has published new compilations in the Chicken Soup series following the July 1, 2008 expiration of the final publishing contract between Hansen and Canfield and HCI. Apparently through its discovery, HCI has named additional party defendants since the 2008 hearing on injunctive relief.   There have been some changes of counsel as well.   However, many of the essential matters in dispute between the parties have remained largely unchanged since the first complaint.

The West Coast creators of the original Chicken Soup brand, Hansen and Canfield, have both taken on reduced roles in the Chicken Soup book business since their 2008 sale of the brand and the rights to the Connecticut based CSSP. HCI alleges that the two men are part owners and/or investors in CSSP. The new owner CSSP itself apparently has several layers of management companies and corporate officers, and these people and entities have also been named as defendants by HCI. There are three defendant LLCs:  Chicken Soup for the Soul (CSS), E Brands, and Trema.   In addition to these corporate entities, the three individual defendants affiliated with these LLCs are:  William Rouhana, Chief Executive Officer and Chairman of the Board of CSSP and CSS, and managing member of Trema;  Robert Jacobs, Chief Operating Officer, President and Secretary of CSSP and CSS, and member of E Brands;  and Amy Newmark, Publisher of CSSP.

To understand the claims of the parties, it helps to become familiar with what constitutes a “front list” book, and what is a “backlist” book.³  Both of these sales and marketing terms are widely used in the book publishing world.   Front list and backlist are the shorthand terms used in the industry to distinguish the lists of book titles offered for sale each year by any given publisher.   A series of newly published books offered for sale to the public each year is known as a publisher's “front list.”   By contrast, a publisher's “backlist” refers to older books from past seasons still in print;  that is, they are books that are yet available for purchase through the publisher, if not always currently stocked in bookstores.   Both newly published books (the front list) and older books still in print (the backlist) that are sold by a publisher are known and referenced in the book trade in this fashion.   As time goes by the books on a publisher's front list eventually turn into (and add to the inventory of) a publisher's backlist.   Like any other property rights that are alienable pursuant to contract, the court notes that it is not unheard of in the publishing industry for the rights to the backlist and the rights to the front list of a particular book series to be owned by two different companies.   This is now the situation with the Chicken Soup series at stake in this case.

Besides being the current owner of the Chicken Soup brand of books, CSSP is also a publishing company itself, and since 2008 it has re-launched the brand into the book publishing marketplace.   CSSP is utilizing different Chicken Soup themed titles with a new trade dress.   In addition to Chicken Soup books containing all new content, CSSP has published twenty-one new compilations of reshuffled short stories printed on different paper and with different graphics.   These short stories themselves previously appeared in a variety of different groupings, sequences and thematic arrangements in other, older Chicken Soup compilations produced by Hansen and Canfield and published by HCI. Those older compilations remain for sale in the various Chicken Soup books on HCI's backlist.   It is primarily the legal status of certain short stories that have previously appeared in those HCI Chicken Soup publications that is at the heart of this litigation.   A related issue in dispute surrounds the non-publication by HCI of Chicken Soup books, specifically books that were ostensibly ready for publication by Hansen and Canfield before their July 1, 2008 contract with HCI expired.   The last manuscript was delivered to HCI on November 30, 2007, some nine months before.   The claim is that these other books were either ready to publish, nearly ready or with good faith efforts could have been ready for HCI to publish under the then still active contract.   Instead, they were withheld by Hansen and Canfield, with the manuscripts delivered to CSSP after HCI's contract had expired, in order to jump start the “start up” Chicken Soup venture.   Through an arrangement with Simon & Schuster, CSSP published these new books instead of HCI.

While the universe of self-help and self-improvement stories may well be limitless, apparently the number of accounts worthy of publication or republication in the Chicken Soup book series is not.   Like determinations of evidence, when it comes to certain inspirational stories, it is a case of quality, not quantity.   There are over 16,000 stories in the genre written by thousands of authors that have appeared in the Chicken Soup series over the years.   The quality stories in the Chicken Soup data base were mined and repackaged and sold by CSSP as greatest hits compilations titled, “Our 101 Best Stories.”   This was a 21–volume project that HCI refers to as the actionable “21 Books.”   In so doing, the 21 Books became part of CSSP's front list.   This is the source of one of the disputes between HCI and the defendants.   It is essentially over the recycling to create the 21 Books by the new owner CSSP of some stories that were culled from earlier Chicken Soup compilations on HCI's backlist.   The backlist for HCI is the older Chicken Soup books it published for Hansen and Canfield.

HCI alleges that one or more of the defendants breached its Chicken Soup publishing contracts by failing to pay certain sums due HCI under those contracts;  by failing to deliver to HCI certain manuscripts during the last year of its final contract with Hansen and Canfield;  and by CSSP's republishing of certain stories in new Chicken Soup compilations, stories that had previously appeared in Chicken Soup books published by HCI. Now before the court is the defendants' joint motion to strike two of the counts of HCI's Fourth Amended Complaint.   These are the allegations of conversion and statutory theft, labeled as the seventh and eighth counts of the complaint, respectively.   The defendants claim that these allegations are insufficient as a matter of law and should be stricken, because they are intangible property rights that cannot support claims for conversion and statutory theft.   The defendants of course contest the allegations, but they argue in effect that even if HCI could prevail here, its remedy would be monetary damages for breach of contract, not conversion or theft.   The plaintiff HCI objects to the motion to strike, claiming that its contractual property rights, although intangible, are specifically identifiable to properly support these two claims.   At oral argument on the motion to strike, the parties agreed on one item.   Due to the nature of the property interest in dispute, the conversion and statutory theft claims themselves are sufficiently related such that they would rise or fall together on their merits, if only for purposes of this motion.

Motion to Strike—Legal Standard

The law governing the court's consideration of a motion to strike is well established.  “The purpose of a motion to strike is to contest ․ the legal sufficiency of the allegations of any complaint ․ to state a claim upon which relief can be granted.”  (Internal quotation marks omitted.)  Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003).  “It is fundamental that in determining the sufficiency of a [pleading] challenged by a [party's] motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted.”  (Internal quotation marks omitted.)  Gazo v. Stamford, 255 Conn. 245, 260, 765 A.2d 505 (2001).  “A motion to strike admits all facts well pleaded;  it does not admit legal conclusions or the truth or accuracy of opinions stated in the pleadings.”  (Emphasis in original;  internal quotation marks omitted.)   Faulkner v. United Technologies Corp., 240 Conn. 576, 588, 693 A.2d 293 (1997).  “A motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged.”  (Internal quotation marks omitted.)  Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003).   The court “construe[s] the complaint in the manner most favorable to sustaining its legal sufficiency ․ [I]f facts provable in the complaint would support a cause of action, the motion to strike must be denied.”  (Internal quotation marks omitted.)  Sullivan v. Lake Compounce Theme Park, Inc., 277 Conn. 113, 117–18, 889 A.2d 810 (2006).  “A motion to strike is properly granted if the complaint alleges mere conclusions of law that are unsupported by the facts alleged.”  (Internal quotation marks omitted.)  Fort Trumbull Conservancy, LLC v. Alves, supra, 262 Conn. 498.   Further, our Supreme Court “will not uphold the granting of [a] motion to strike on a ground not alleged in the motion.”  Blancato v. Feldspar Corp., 203 Conn. 34, 44, 522 A.2d 1235 (1987).

“In ruling on a motion to strike, the court is limited to the facts alleged in the complaint.”  (Internal quotation marks omitted.)  Faulkner v. United Technologies Corp., supra, 240 Conn. 580.  “A motion to strike challenges the legal sufficiency of a pleading ․ and, consequently, requires no factual findings by the trial court.”  (Internal quotation marks omitted.)  Batte–Holmgren v. Commissioner of Public Health, 281 Conn. 277, 294, 914 A.2d 996 (2007).  “This court takes “the facts to be those alleged in the complaint ․ and ․ construe[s] the complaint in the manner most favorable to sustaining its legal sufficiency ․ Thus [i]f facts provable in the complaint would support a cause of action, the motion to strike must be denied ․ Moreover, [the court notes] that [w]hat is necessarily implied [in an allegation] need not be expressly alleged ․ It is fundamental that in determining the sufficiency of a complaint challenged by a defendant's motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted ․ Indeed, pleadings must be construed broadly and realistically, rather than narrowly and technically.”  (Internal quotation marks omitted.)   Connecticut Coalition for Justice in Education Funding, Inc. v. Rell, 295 Conn. 240, 252–53, 990 A.2d 206 (2010).

As previously stated therefore, for purposes of a motion to strike, the court must restrict itself to the allegations contained in the complaint, and must accept those allegations as true.⁴  But besides those facts taken as admitted for purposes of this motion, certain legal opinions and conclusions as to both conversion and statutory theft are the primary focus of disagreement between the parties.   As to those disputed legal opinions and conclusions, per the Supreme Court in Faulkner, supra, this court will make its own findings.

Conversion & Statutory Theft

“Conversion is usually defined to be an unauthorized assumption and exercise of the right of ownership over goods belonging to another, to the exclusion of the owner's rights ․ It is some unauthorized act which deprives another of his property permanently or for an indefinite time;  some unauthorized assumption and exercise of the powers of the owner to his harm.   The essence of the wrong is that the property rights of the plaintiff have been dealt with in a manner adverse to him, inconsistent with his right of dominion and to his harm.   There are two general classes into which conversions are grouped:  (1) those where the possession is originally wrongful, and (2) those where it is rightful.   The first class comprises a conversion by a wrongful taking, or by an illegal assumption of ownership, or by an illegal user or misuse, or by any other form of possession wrongfully obtained.   The second class comprises those where the possession, originally rightful, becomes wrongful by a wrongful detention.”  (Citations omitted.)  Coleman v. Francis, 102 Conn. 612, 615 (1925).

In order to distinguish the tort claim of statutory theft from its criminal cousin in the Penal Code, statutory theft is also sometimes referred to as ‘civil theft.’   Section 52–564 is the civil theft statute.   It provides that:  “Any person who steals any property of another, or knowingly receives and conceals stolen property, shall pay the owner treble his damages.”   While the statute uses the term “steals,” it is not a criminal statute, but rather, it is a civil remedy that borrows elements of proof from the criminal law.   The Supreme Court has held that statutory theft for civil damages under § 52–564 is synonymous with larceny as defined in the Penal Code, General Statutes § 53a–119.  Hi–Ho Tower, Inc. v. Com–Tronics, Inc., 255 Conn. 20, 44, 761 A.2d 1268 (2000);  Suarez–Negrete v. Trotta, 47 Conn.App. 517, 520–21, 705 A.2d 2015 (1998).  Section 53a–119 provides that “[a] person commits larceny when, with intent to deprive another of property or to appropriate the same to himself or a third person, he wrongfully takes, obtains or withholds such property from an owner.”   The statute may be broken down into its component parts, as follows:  “It must be shown that (1) there was an intent to do the act complained of, (2) the act was done wrongfully, and (3) the act was committed against an owner ․ The essential cause of action is a wrongful exercise of dominion over personal property of another ․ It is not wrongful to commit an act which would otherwise be ․ a conversion if the act is, or is reasonably believed to be, necessary to protect the actor's land ․ and the harm inflicted is not unreasonable as compared with the harm threatened.”   Sullivan v. Delisa, 101 Conn.App. 605, 619–20, 923 A.2d 760 (2007).

The elements of statutory theft are largely the same as the elements to prove the tort of conversion, but theft requires a plaintiff to prove the additional element of the defendant's intent, an intent that is over and above what must be demonstrated to prove conversion.  Deming v. Nationwide Mutual Ins. Co., 279 Conn. 745, 771, 905 A.2d 623 (2006).  “Conversion can be distinguished from statutory theft as established by § 53a–119 in two ways.   First, statutory theft requires an intent to deprive another of his property;  second, conversion requires the owner to be harmed by a defendant's conduct.”   Whitaker v. Taylor, 99 Conn.App. 719, 732, 916 A.2d 834 (2007).  “[M]oney can be the subject of statutory theft ․ The plaintiffs must establish, however, legal ownership or right to possession of specifically identifiable moneys.”  (Citation omitted.)  Deming v. Nationwide Mutual Ins. Co., supra, 279 Conn. 745, 771–72.   However, “[a]n action for conversion of funds may not be maintained to satisfy a mere obligation to pay money ․ It must be shown that the money claimed, or its equivalent, at all times belonged to the plaintiff and that the defendant converted it to his own use ․ Thus, [t]he requirement that the money be identified as a specific chattel does not permit as a subject of conversion an indebtedness which may be discharged by the payment of money generally ․ A mere obligation to pay money may not be enforced by a conversion action ․ and an action in tort is inappropriate where the basis of the suit is a contract, either express or implied.”   (Citations omitted;  internal quotation marks omitted.)  Deming v. Nationwide Mutual Ins. Co., supra, 279 Conn. 772.

“Generally, [a] plaintiff must establish legal ownership or right to possession in the particular thing, the specifically identifiable [monies], that the defendant is alleged to have converted.”  (Internal quotation marks omitted.)  Macomber v. Travelers Property & Casualty Corp., supra, 261 Conn. 650.  “The term owner is one of general application and includes one having an interest other than the full legal and beneficial title.”  (Internal quotation marks omitted.)  Deming v. Nationwide Mutual Ins. Co., supra, 279 Conn. 770.  “In Connecticut, intangible property interests have not traditionally been subject to the tort of conversion, except for those intangible property rights evidenced in a document.   See, e.g., Aetna Life & Casualty Co. v. Union Trust Co., 230 Conn. 779, 790 n.6, 646 A.2d 799 (1994) (conversion of trust account);  Devitt v. Manulik, 176 Conn. 657, 662–63, 410 A.2d 465 (1979) (conversion applicable to account passbook).”  Hi–Ho Tower, Inc. v. Com–Tronics, Inc., 255 Conn. 20, 44, 761 A.2d 1268.

When an individual case does not require the court to apply the law of another state, it is generally not this court's preference to rely upon decisions by the courts of other states or other jurisdictions.   With few exceptions, Connecticut jurisprudence and our body of written case law are sufficiently well established to furnish guidance to the trial court on a cause of action.   An exception is made here when such a decision from another state is cited with approval by the Connecticut Supreme Court in its own opinion that is relevant to the allegation of conversion now before this court.   Such is the case of Belford Trucking Company v. Zagar, 243 So.2d 646 (Fla.App.1970), which was the authority cited by our Supreme Court in Deming, supra, for the concept that the property alleged to have been converted must be identifiable as specific chattel.⁵  Belford reversed a jury verdict that found that a defendant trucking company had converted the plaintiff truck driver's money.   The plaintiff had been under contract to drive for the company for a number of months, and he sued for the company for conversion when the company terminated that agreement.   He was awarded $6,000 in damages, but the Belford court found that the money sought lacked the specificity required to make it a proper subject of conversion.   In its reversal, the court found that in essence the plaintiff sought damages not for the conversion of a specific and identifiable stated sum of money, but rather, to enforce a general contractual obligation to pay him money.

“There is nothing in the nature of money as personal property which makes it an improper subject of conversion so long as it consists of specific money capable of identification.   To be a proper subject of conversion each coin or bill need not be earmarked, but there must be an obligation to keep intact or deliver the specific money in question, so that such money can be identified.   Money is capable of identification where it is delivered at one time, by one act and in one mass, or where the deposit is special and the identical money is to be kept for the party making the deposit, or where wrongful possession of such property is obtained.   An example is where a specific sum of money is to be held in constructive trust until the occurrence of a specified event.”   (Citations omitted.)  Belford, 243 So.2d 646, 648.   Money is far more fungible than publishing rights to a story, and where the property at issue is susceptible of specific identification, it may also be the subject of conversion or theft.

HCI alleges that by publishing the 21 Books, the defendants are liable to HCI for conversion and theft and royalties, by assuming dominion and control over Chicken Soup books on HCI's backlist, in violation of its contractual rights.   HCI further alleges conversion and theft by the defendants not delivering to HCI certain books that should have been delivered to it under its contract with Hansen and Canfield.   The defendants argue that the contract with Hansen and Canfield that HCI attached to its complaint as Exhibit D may properly be considered by the court in ruling on this motion to strike.   This position is supported by case law.  “A complaint includes all exhibits attached thereto.”   Tracy v. New Milford Public Schools, 101 Conn.App. 560, 566, 922 A.2d 280, cert. denied, 284 Conn. 910, 931 A.2d 935 (2007).   This contract ⁶ does not obligate the defendants to deliver any books to HCI during the term of the agreement.   Such an argument, however, does not affect the 21 Books published by CSSP, books that HCI alleges were also converted.  “Insofar as [a] motion to strike is directed [to] the entire complaint, it must ․ fail if any of the plaintiff's claims are legally sufficient.”  (Internal quotation marks omitted.)  Whelan v. Whelan, 41 Conn.Sup. 519, 520, 588 A.2d 251 (1991);  see Water Commissioners v. Robbins, 82 Conn. 623, 633, 74 A. 938 (1910) (motion to strike special defense and counterclaim denied because the allegations constituted two entirely independent and complete defenses or counterclaims embodied in the pleading;  thus leaving, in essence, a second defense or counterclaim to support the pleading taken as a whole).

Conclusion

The decision now before the court is a complaint-specific motion to strike.   Evidentiary determinations and questions of intent will have to await the evidence, but viewing the pleadings in a light most favorable to the plaintiff, as it must, the court finds that HCI has alleged sufficient facts to state causes of action for conversion and statutory theft, and for which relief can be granted.   The disputed property, the Chicken Soup stories originally published by HCI and that were later republished in the 21 Books by CSSP, are all unique and readily identifiable intangible property rights evidenced in a document.   They are specific enough to make them the proper subject of conversion and theft allegations.   The Motion to Strike is denied as to both counts.

IT IS SO ORDERED,

Blawie, J.

FOOTNOTES

FN1. See Chicken Soup for the Soul Publishing, LLC v. Health Communications, Inc., Superior Court, complex litigation docket at Stamford–Norwalk at Stamford, Docket No. X05 08 5007853..  FN1. See Chicken Soup for the Soul Publishing, LLC v. Health Communications, Inc., Superior Court, complex litigation docket at Stamford–Norwalk at Stamford, Docket No. X05 08 5007853.

FN2. This was the title of the first edition, which became a New York Times # 1 bestseller.   The names of the different Chicken Soup books in the series that followed varied according to the particular topic or subject matter, but all titles contained the phrase “Chicken Soup” in one context or another.   For ease of reference, they will be referred to herein as the Chicken Soup series.   Total sales of these books have exceeded 100 million copies..  FN2. This was the title of the first edition, which became a New York Times # 1 bestseller.   The names of the different Chicken Soup books in the series that followed varied according to the particular topic or subject matter, but all titles contained the phrase “Chicken Soup” in one context or another.   For ease of reference, they will be referred to herein as the Chicken Soup series.   Total sales of these books have exceeded 100 million copies.

FN3. Unlike “backlist,” accepted English usage requires that “front list” be spelled as two words..  FN3. Unlike “backlist,” accepted English usage requires that “front list” be spelled as two words.

FN4. Recognition of this principle of law in discussing a motion to strike avoids the repeated characterization of the allegations as allegations in this memorandum of decision..  FN4. Recognition of this principle of law in discussing a motion to strike avoids the repeated characterization of the allegations as allegations in this memorandum of decision.

FN5. An interesting coincidence is that Belford is a Florida opinion, and certain relevant agreements specify the application of Florida law, where HCI is based.   See, eg, Complaint ¶ 27.This motion to strike, however, has been decided as a matter of Connecticut law..  FN5. An interesting coincidence is that Belford is a Florida opinion, and certain relevant agreements specify the application of Florida law, where HCI is based.   See, eg, Complaint ¶ 27.This motion to strike, however, has been decided as a matter of Connecticut law.

FN6. For a more extensive discussion of these Chicken Soup contracts, see the court's earlier memorandum of decision # 147.00..  FN6. For a more extensive discussion of these Chicken Soup contracts, see the court's earlier memorandum of decision # 147.00.

Blawie, John F., J.