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  California's Leader in Community Association Law November 13, 2016
CLUBHOUSE MUSIC
LICENSE FEES


QUESTION: We play music in our clubhouse and have a movie night each week. One of our members said we have to pay a license fee because everything is copyrighted. Is that true?

ANSWER: It depends. Congress allowed for limited exemptions to the licensing rule that clubhouse music could fall into (such as playing a radio or television in a public place if the association does not charge a fee to watch or listen to the performance). Following are some of the guidelines for deciding whether you qualify.

Intellectual Property. Music and movies are the intellectual property of those who create and copyright them. If you authorize the "performance" of their work, you are required to pay a fee. This applies to radio and TV stations, restaurants, department stores, etc. It also applies to community associations that put on "public" (17 U.S.C., §101(1)) performances of music and movies in their clubhouses.

Clubhouse Considered Public. A clubhouse is considered a public forum within the development. (Fermata Int'l Melodies, Inc. v. Champions Golf Club, Inc., 712 F.Supp. 1257 (S.D. Tex.1989); Damon v. Ocean Hills.) One condominium association was found in violation when it played copyrighted songs for a dance held in its clubhouse where it did not charge a fee to attend but asked for a donation, which the court deemed an admission fee. (Hinton v. Mainlands of Tamarac, 611 F.Supp. 494 (S.D. Fla. 1985).)

Clubhouse Movie Night. Unless license fees are paid, clubhouse movie nights for members violate copyright laws. The Motion Picture Licensing Corporation posted the following on its website:
  • Motion pictures and other audiovisual works that are available for rental or purchase are intended for personal, private, home use only. If you wish to show the work in any other place, you must have a separate license that specifically authorizes the public performance of that work. These rules are detailed in the federal Copyright Act, as amended, Title 17 of the United States Code.

  • According to The Copyright Act, only the copyright owner holds the exclusive right, among others, “to perform the copyrighted work publicly.” (Section 106)

  • The rental or purchase of a motion picture or other audiovisual work does not include the right to perform the copyrighted work publicly. (Section 202)

  • Films may be shown without a separate license in the home to “a normal circle of family and its social acquaintances” (Section 101) because such showings are not considered public.

  • Films may be shown without a license to non-profit educational institutions for face-to-face teaching activities because the law provides a limited exception for such showings. (Section 110(1))

  • All other public performances of motion pictures and other audiovisual works are illegal unless they have been authorized by license. Even performances in semi-public places such as clubs, lodges, factories, summer camps and schools are public performances subject to copyright control. (Senate Report No. 94-473, page 60; House Report No. 94-1476, page 64)

  • Both for-profit organizations and non-profit institutions must secure a license to show films, regardless of whether an admission fee is charged. (Senate Report No. 94-473, page 59; House Report No.94-1476, page 62)

Licensing. Associations can purchase annual licenses for music from ASCAP (American Society of Composers, Authors and Publishers), BMI (Broadcast Music Inc.), UMG (Universal Music Group), RIAA (Recording Industry Association of America), and SESAC (Society of European Stage Authors and Composers). A license from any of the above organizations only applies to copyrighted material in that organization's collection. Accordingly, it may be necessary for an HOA to obtain licenses from more than one organization. For movies, the licensing organizations are MPLC (Motion Picture Licensing Corporation) and Criterion Pictures.

Penalties. Inadvertent violation of copyright laws can result in statutory damages ranging from $750 to $30,000 per violation plus attorneys' fees and costs. Intentional violations can result in damages up to $150,000 per violation plus attorneys' fees and costs.

RECOMMENDATION: The laws are wide-ranging and the exceptions can be confusing. Boards should consult legal counsel to see if they qualify for an exception.

DIRECTOR'S FAILURE
TO INVESTIGATE


The business judgment rule protects directors from personal liability provided they conduct a reasonable investigation (due diligence) before making a decision.

In a recently published case, the Court of Appeal found that board president Edna Parth was subject to personal liability for failing to investigate matters before taking action. The court was disturbed that, among other things, she:

1. Hired a roofing company without soliciting bids, checking references or licensing, without verifying insurance, or consulting management or legal counsel. The company proceeded to perform defective work that required additional repairs.

2. Signed promissory notes for $900,000, $325,000 and $550,000, secured by the association's assets, receivables and property. Parth later testified that she had not reviewed the CC&Rs or bylaws and did not know whether she had authority to sign the notes and was not aware they needed membership approval.

3. Signed a five-year contract with a landscape company and later admitted she did not know if she had authority to sign it. She testified that her understanding of her authority under the bylaws was "none."

The court noted that the failure of a director to conduct due diligence is a breach of their fiduciary duty. In addition, conduct contrary to the governing documents may fall outside the business judgment rule. The court commented that directors cannot close their eyes to matters as basic as the provisions of the CC&Rs and bylaws and at the same time claim they exercised business judgment.


RECOMMENDATION: Board members should make sure their minutes reflect that they investigated and deliberated on issues before making a decision. In addition, they should consult legal counsel, management, and consultants as may be appropriate. Finally, they should have a working knowledge of their governing documents (and then follow them). To read the case, see Palm Springs Villas II HOA v. Parth

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Board Meeting Agendas #1. I LOVE this newsletter. As a former board member of an HOA, I wish I had had this when I served. -Suzanne K.

Adopt a Highway #1
. Have there been any issues regarding limiting this program or halting it altogether due to lawsuits? We live in a community that has become unsightly due to the litter lining the major highway which runs through town. I have heard rumors the program can't do clean ups anymore because of lawsuits. If this is not true, I will contact our city council and find out why it is not being implemented. Are negotiations possible between Cal Trans and local communities to prioritize litter clean-up efforts? -Allan S.

RESPONSE: I’m not aware of the rumor and there is no mention of it on the State’s website. By all accounts, the program is thriving. You should contact program representatives for more information.

Adopt a Highway #2. Congratulations to Senator Stirling! I remember the days when highways were littered. It was so bad you could not see the forest for the trash. Nice to know there is one lawmaker who actually did some good. -Finn M.

Adopt a Highway #3. Congratulations, Larry. That was just one of your great pieces legislation. -Don B.

Adopt a Highway #4
. Thank you Adrian for your adopt-a-highway recognition. Credit for the success of the legislation also goes to Peter Morin, founder of the Adopt-A-Highway Corporation headquartered in Orange County. -Larry Stirling
Adrian J. Adams, Esq.

Adrian J. Adams, Esq.
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