arneson v. tsr inc 1985

3 of 4 DOCUMENTS

CitedAs of: Mar 09, 2012

DAVID L. ARNESON, Plaintiff, v. TSR HOBBIES, INC., a corporation, Defendant.

Civil No. 4-84-1180

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTAFOURTH DIVISION

1985 U.S. Dist. LEXIS 21340; 225 U.S.P.Q. (BNA) 1252

March 27, 1985

CASE SUMMARY:

PROCEDURAL POSTURE: Plaintiff creator of a gamesought declaratory relief against defendant, the companythat sold the game, alleging breach of contract. Thecompany filed a counterclaim for declaratory andinjunctive relief. Both parties filed motions for summaryjudgment on the complaint and on one of the countscontained in the counterclaim. The dispute concernedwhether a game was a revised edition requiring thecompany to pay royalties to the creator.

OVERVIEW: The court granted judgment to the creator.The court found that the settlement agreement betweenthe parties was not ambiguous and looked at theagreement's plain language. The court found that thegame was a revised edition and the creator was entitled toroyalties for its sales. The court held that the company'sfailure to make payments on royalties admittedly owingbecause it was withholding them as an off-set to thepayments it had made on the second edition, constituted adefault by the company under the agreement. The court

found that the two works had the same or similar title,included substantially the same rules, and the subjectmatter of the works were substantially the same. Thecourt held that under the plain meaning of the agreement,payment could only be withheld on the contested "new"item. Because the company withheld payments onroyalties admittedly owing, the company defaulted andsummary judgment was granted.

OUTCOME: The court granted the creator's motion forsummary judgment on his complaint and the company'sfirst counterclaim. The court denied the company'smotion for summary judgment.

CORE TERMS: monster, manual, royalty, revisededition, subject matter, default, counterclaim, summaryjudgment, owing, creatures, royalties payments,admittedly, playing, preface, matter of law, declaration,unambiguous, settlement agreement, overpayment,withholding, quarterly, set-off, entitled to summaryjudgment, reasonable interpretation, declaratory,ambiguous, artistic, style, foreign language, failure to pay

LexisNexis(R) Headnotes

Civil Procedure > Summary Judgment > Motions forSummary Judgment > General OverviewCivil Procedure > Summary Judgment > Standards >General OverviewContracts Law > Defenses > Ambiguity & Mistake >General Overview[HN1] Under Fed. R. Civ. P. 56, a motion for summaryjudgment may be granted only if the pleadings andaffidavits show that there is no genuine issue as to anymaterial fact and that the moving party is entitled tojudgment as a matter of law. Fed. R. Civ. P. 56(c).Disputes involving the interpretation of unambiguouscontracts are appropriate cases for summary judgment.Construction of a contract is essentially one ofdetermining the intent of the parties; it is normally amatter of law for the court. However, where a contract isambiguous, summary judgment is not appropriate.Contract language is ambiguous only when it isreasonably susceptible of more than one meaning.

Contracts Law > Contract Interpretation > GeneralOverview[HN2] Words appearing in a contract are to be given theirplain ordinary meaning.

COUNSEL: [*1] MAHER J. WEINSTEIN, Esq., andMICHAEL HIRSCH, Esq., Moss & Barnett, 1200Pillsbury Center, Minneapolis, Minnesota 55402, forplaintiff.

JOHN L. BEARD, Esq., Michael, Best & Friedrich, 250East Wisconsin Avenue, Milwaukee, Wisconsin 53202,for defendant.

OPINION BY: MURPHY

OPINION

MEMORANDUM OPINION AND ORDER

Plaintiff, David L. Arneson, brought this action fordeclaratory relief against defendant, TSR Hobbies, Inc.(TSR), alleging breach of contract. Jurisdiction is allegedunder 28 U.S.C. § 1332 and 28 U.S.C. § 2201. TSR hasfiled a counterclaim for declaratory and injunctive relief.This matter is now before the court upon the parties'

cross-motions for summary judgment on the complaintand on one of the counts contained in the counterclaim.

Background

The facts leading up to the publication of MonsterManual II, the subject matter of this royalties dispute arebasically undisputed. Arneson and Gary Gygaxcollaborated in the development of a fantasy role-playinggame entitled "Dungeons and Dragons". In 1980,Arneson brought an action against TSR and Gary Gygax,its principal officer, director, and shareholder, to recoverdamages and royalties relating to the publication [*2] of"Dungeon and Dragons" and "Advanced Dungeon andDragons". In 1981 the lawsuit was settled by means ofthe March 6, 1981 agreement. This action seeks adeclaration that TSR is in breach of that agreement.

A. The Agreement

There are two main provisions in the agreement forroyalties payable to Arneson. At issue in this action isthe royalty provision applicable to a series of workspublished as "Advanced Dungeons and Dragons". Theprovision provides that defendant is obligated to provideroyalties payments up to a maximum of $1,200,000.

One of the works covered by this provision is a workentitled Official Advanced Dungeon & Dragons MonsterManual (Monster Manual). Monster Manual containsdescriptions of a large number of creatures, over 300, thatmay be used in playing Advanced Dungeons andDragons. It also contains the game rules for the use ofthe monsters in the play of the game. The work wascopyrighted in 1977 and 1978, and Arneson has receivedsubstantial royalties from its sale.

Paragraph 6(g) of the agreement provides that TSRwill pay Arneson a royalty of 2 1/2% of the cover pricefor every copy sold of Monster Manual. Monster Manualis defined in paragraph [*3] 7(f) of the agreement toinclude "the book currently published by TSR entitled"ADVANCED DUNGEONS & DRAGONS MonsterManual" (2009) and any revised edition or foreignlanguage translation thereof." Paragraph 7(a) defines"revised edition" to mean "a printed work having a titlethe same as or similar to the related earlier work, revisedto include changes or additions to the text, but continuingto include substantially the same rules and subject matteras contained in the earlier work."

1985 U.S. Dist. LEXIS 21340, *; 225 U.S.P.Q. (BNA) 1252

The royalties are to be paid quarterly as provided inparagraph 11. Paragraph 17 expressly provides that"failure to pay, when due, any and all amounts requiredto be paid pursuant to paragraph 6 and 15 above"constitutes a default on the part of TSR under theagreement, if not remedied by TSR within 30 days afterreceiving written notice of said failure to pay fromArneson. Paragraph 17(h) creates a limited exception tothis procedure:

If there is a good faith dispute as to Arneson's royaltyor compensation entitlement to a new item which doesnot currently exist and which does not constitute arevised edition or a foreign language translation of acurrently existing item, but said new item is [*4] allegedby Arneson to fall under a more general definitioncontained herein, then TSR's failure to make payments onsaid new items hall not be deemed to be a default untilthere is a written agreement resolving the disputes to saidnew item between the parties, or until final resolution ofthe good faith dispute by a Court, but only if notremedied by TSR within thirty (30) days after a finalresolution requiring TSR to make payments on the newitem.

B. The Dispute

In 1983, TSR published Official AdvancedDungeons & Dragons Monster Manual II (MonsterManual II). This work contains the description of over300 new creatures. These are new monsters that are to beused in addition to the monsters listed in Monster Manualin playing Dungeons and Dragons. It also contains thesame game rules as in Monster Manual and includes anindex to all creatures listed in Monster Manual, MonsterManual II and the Fiend Folio Tome.

The dispute between the parties centers on whetherMonster Manual II is a "revised edition" of MonsterManual under the terms of the settlement agreementbetween the parties. TSR initially, for a period ofapproximately one year, made royalty payments toArneson [*5] on Monster Manual II totalling$108,703.50. These payments stopped on November 2,1984 when TSR sent a letter to Arneson stating that thepayments on Monster Manual II had been madeinadvertently and by mistake because it is not a "revisededition" of Monster Manual. The letter went on to statethat TSR was therefore crediting the overpayment againstthe $60,238.68 third quarter (1982) royalty otherwise dueon other works and that there remained an overpayment

of $48,464.82, which would be credited by TSR againstsubsequent quarterly royalty amounts. Arneson, throughhis attorney, responded in a letter dated November 5,1984 informing TSR that it has no right to credit or offsetroyalty payments owing on items other than MonsterManual II and that such actions have placed TSR indefault under paragraph 17 of the contract. This actionwas filed on November 14, 1984.

TSR has filed a counterclaim against Arnesonseeking a declaration of its right to set-off the$108,703.50 and also asserts three other counterclaimsthat are not part of these motions before the court. 1

1 TSR alleges in its second and thirdcounterclaims that Arneson is preparing aderivative work from Dungeons and Dragons inviolation of the agreement and the copyright laws.The fourth counterclaim alleges that Arneson hasimproperly attempted to convey and conveyedrights to use TSR's Dungeon and Dragontrademark.

[*6] Discussion

[HN1] Under Rule 56 of the Federal Rules of CivilProcedure, a motion for summary judgment may begranted only if the pleadings and affidavits show that"there is no genuine issue as to any material fact and thatthe moving party is entitled to judgment as a matter oflaw." Fed. R. Civ. P. 56(c). Disputes involving theinterpretation of unambiguous contracts are appropriatecases for summary judgment. Jackson v. RooseveltFederal Savings & Loan Ass'n, 702 F.2d 674, 684 (8thCir. 1982); Parish v. Howard, 459 F.2d 616, 618 (8thCir. 1972). Construction of a contract is essentially oneof determining the intent of the parties; it is normally amatter of law for the court. Armstrong v. Colleti, 88Wis.2d 148, 276 N.W.2d 364, 366 (Wis. Ct. App. 1979).However, where a contract is ambiguous, summaryjudgment is not appropriate. Champale, Inc. v. Joseph S.Pickett & Sons, Inc., 599 F.2d 857, 859 (8th Cir. 1979).Contract language is ambiguous only when it isreasonably susceptible of more than one meaning. Pattiv. Western Machine Co., 72 Wis. 2d 348, 241 N.W.2d158, 160 (1976).

Both parties claim that the language of the 1981agreement is unambiguous [*7] but argue for oppositeconclusions.

1985 U.S. Dist. LEXIS 21340, *3; 225 U.S.P.Q. (BNA) 1252

Arneson asserts that at a minimum he is entitled toroyalties at 2 1/2% for the works admittedly covered bythe settlement agreement without any right ofimpoundment or set-off by TSR for royalties it claims tohave erroneously paid on Monster Manual II. He claimsthat TSR is in default on the agreement regardless ofwhether Monster Manual II is a revised edition becauseTSR has failed to pay the $60,238.68 admittedly owing.He also asserts that even if the $108,703.50 in royaltieswas paid by mistake, TSR cannot recover any of themoney because it was a mistake of law.

Arneson's main contention is that he is entitled toroyalties at 2 1/2% on the sales of Monster Manual IIbecause it is a "revised edition" of Monster manual asdefined in paragraph 7(a) of the agreement. Arnesonstates that the only issue is whether Monster Manual IIincludes substantially the same subject matter as MonsterManual. Arneson argues that both manuals purport to bean alphabetical compendium or listing of the monstersfound in Advanced Dungeons and Dragons. He claimsthat the preface in Monster Manual II written by theauthor, Gary Gygax, makes it clear that [*8] the newmanual is simply an expansion of Monster manual whichwill some day comprise three or four books as additionalmonsters continue to be added. Finally, he argues thatthe identical formats and purpose of the manualsestablishes that Monster Manual II involves the samesubject matter and that the new monsters are merelyadditions to the original text.

TSR contends that paragraph 17(h) allows it towithhold payments made for Monster Manual II. Itclaims that Monster Manual Ii is a "new work" and bycrediting the mistaken payments made against royaltiesotherwise due, it is availing itself of the provision in17(h) that "failure to make payments on said new itemshall not be deemed to be a default . . ." It therefore cancontinue to withhold payments and is not in default onthe agreement.

TSR argues that Monster Manual II does not includesubstantially the same subject matter as Monster manualand therefore is not a revised edition. It also argues thatMonster Manual II does not include changes or additionsto the text, but rather that the vast majority (97%) was anentirely new work. It notes that the definition of "subjectmatter" is "the substance of a . . . book [*9] . . . asdistinguished from its form or style" rather than the"subject of a . . . book" as erroneously stated by Arneson.

It finds this distinction crucial: while Monster Manual IImay have the same general "subject", i.e., monsters, the"substance" of the books, namely the descriptions ofmonsters, are not the same. TSR concludes that ifMonster manual Ii is not a revised edition it can properlyrecover the $108,703.50 already paid in royalties,because the payments involved a mistake of fact.Furthermore, TSR claims the right to extinguish this debtby withholding future royalties on other items becausemutual debts extinguish each other by operation of law.

The language of the 1981 agreement between theparties is controlling on the issues raised by the parties.The court has carefully reviewed the disputed contractualprovisions and all of the materials submitted by theparties and finds that the contract is unambiguous andcompels a finding that Arneson is entitled to summaryjudgment. Under paragraph 6(g) and 7(a) MonsterManual II is a revised edition of Monster Manual, andArneson is entitled to royalties for its sales. The failureof TSR to make payments on royalties [*10] admittedlyowing, because it was withholding them as an off-set tothe payments it had made on Monster Manual II,constitutes a default under paragraph 17 of the agreementon the part of TSR.

In order to be entitled to royalty payments onMonster Manual II, Arneson must establish that as amatter of law this work constitutes a "revised edition" ofMonster Manual, as that term is defined in paragraph 7(a)of the settlement agreement. There is no dispute that thetwo works have the same or similar title and includesubstantially the same rules. TSR, however, argues thatMonster Manual II does not satisfy the remaining criteriafor a revised edition.

Under any reasonable interpretation of the languageof the agreement, the subject matter of the works aresubstantially the same. [HN2] Words appearing in acontract are to be given their plain ordinary meaning.North Gate Corp. v. National Food Stores, Inc., 30 Wis.2d 317, 140 N.W.2d 744 (1966); In re All-Star Ins. Corp.,112 Wis. 2d 329, 332 N.W.2d 828 (Wis. Ct. App. 1983).Subject matter is defined as "the substance of adiscussion, book, writing, etc., as distinguished from itsform or style." Random House Dictionary [*11] 1415. 2

It is also defined as "matter presented for consideration;as a: the essential facts, data or ideas that constitute thebasis of spoken, written, or artistic expression orrepresentation; often; the substance as distinguished from


the form of an artistic or literary production." Webster'sThird International Dictionary 2276.

2 TSR makes a great deal out of Arneson'smisquote of this definition as "the subject of adiscussion" rather than the substance. While TSRclaims the distinction is crucial, the differences itattempts to draw are tenuated and of no bearingon the result because the subject matters aresubstantially the same even under the definitionsput forth by TSR.

The substance of both these works is a listing anddescription of monsters to be used in playing AdvancedDungeons and Dragons. Both works are identical in theirpurpose and application; they are to be used as areference source for the playing of Advanced Dungeonsand Dragons. TSR contends, however, that while themanuals may have the same general "subject", the"substance" of the two works is the specific descriptionsof monsters and these are completely different.Obviously, the new [*12] monsters differ from the onescontained in Monster Manual and also from each other.Each monster has different capabilities that come to bearon the playing of the game. Yet, those same differencesexist between each of the monsters listed in MonsterManual itself. While the substance of the description ofeach monster is different, a common theme exists for thecomplete work.

The unifying basis of the two works, their essentialidea, is that these parts make up a whole; an encyclopediaof creatures for the Advanced Dungeons and Dragonsgame system. See Preface to Monster Manual II. Just asthe editions of an encyclopedia are published every fewyears, Monster Manual has been expanded to include newcreatures. Id. TSR's decision to place these new monstersin a separate volume is a difference of mere form anddoes not alter or impact on the substance of the materialwithin. If the new creatures had been interspersedalphabetically into the existing volume, it would havebeen apparent at first glance that the addition of monstersinvolves identical subject matter. The inclusion inMonster Manual II of a common index of all monstersand charts rating monsters from [*13] both volumesfurther demonstrates the unity of the two works.

This decision is supported by the language of theMonster Manual itself. The definition of revised editionand the foreward and preface to the Monster Manualevidence that additions to the work were contemplated

and that, specifically, the addition of new monsters wasforeseen. Indeed, from 1977 on, the author, Gary Gygax,was "designing and collecting monsters with the aim ofpublishing a second volume." Preface to Monster ManualII. The addition of new monsters is also consistent withthe proclaimed subject matter of Monster Manual as "ANALPHABETICAL COMPENDIUM OF ALL OF THEMONSTERS FOUND IN ADVANCED DUNGEONS &DRAGONS . . . ." (emphasis supplied by the court).Under any reasonable interpretation of the agreement,Monster Manual II is an addition to the text and itinvolves substantially the same subject matter.

This ruling makes it necessary to resolve only oneother issue now raised by the parties. TSR argues that itsset-off of payments admittedly owing was not a breach ofparagraph 17 of the agreement placing it in default. Itsreliance on paragraph 17(h) is misplaced in this instance,however. Under [*14] the plain meaning of 17(h)payment can be withheld only on the contested "new"item. TSR withheld payments on royalties admittedlyowing and thus is in default on the agreement underparagraph 17. 3

3 TSR has moved for summary judgment on itsfirst counterclaim which is the flip side of thecomplaint. TSR seeks a declaration that noroyalties are owing on Monster Manual II and thatit has the right to treat the payments made on it asan advance royalty payment against otherroyalties due, unless and until the court finallydetermines that royalties are owing on MonsterManual II. The court's analysis decides theseissues in favor of Arneson and, accordingly, he isentitled to summary judgment on the firstcounterclaim. Northland Greyhound Lines, Inc. v.Amalgamated Ass'n, 66 F. Supp. 431, 432-33 (D.Minn. 1946), appeal dismissed, 157 F.2d 329 (8thCir. 1946); see Pueblo of Santa Ana v. MountainStates Tel. & Tel. Co., 734 F.2d 1402, 1408 (10thCir.), cert. granted, 105 S. Ct. 242 (1984).

ORDER

Accordingly, based upon the above and all the files,records, and proceedings herein,

IT IS HEREBY ORDERED that

1. The motion of plaintiff David L. Arneson [*15]for summary judgment is granted.


2. David L. Arneson is entitled to royalties from the salesof Monster Manual II at the rate and in the amountprovided for in the March 6, 1981 agreement.

3. The actions of TSR Hobbies, Inc., in withholdingquarterly royalty payments as a credit on overpayment ofroyalties on Monster Manual II, place it in default underparagraph 17 of the March 6, 1981 agreement.

4. The motion of defendant TSR Hobbies, Inc. for

summary judgment is denied.

5. Summary judgment is entered in favor of DavidL. Arneson on the first counterclaim of TSR Hobbies,Inc.

LET JUDGMENT BE ENTEREDACCORDINGLY.


arneson v. tsr inc 1985

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