AUTHORIZED FOR EDUCATIONAL USE ONLY
  COPR. (C) WEST 1993 NO CLAIM TO ORIG. U.S. GOVT. WORKS
Not Reported in F.Supp.
225 U.S.P.Q. 1252
(Cite as: 1985 WL 442 (D.Minn.))

                  DAVID L. ARNESON, Plaintiff,
                              v.
            TSR HOBBIES, INC., a corporation, Defendant.
                     Civil No. 4-84-1180.
     United States District Court; D. Minnesota Fourth Division.
                        March 27, 1985.

	MAHER J. WEINSTEIN, Esq., and MICHAEL HIRSCH, Esq., Moss & 
Barnett, 1200 Pillsbury Center, Minneapolis, Minnesota 55402, 
appeared on behalf of plaintiff.
	JOHN L. BEARD, Esq., Michael, Best & Friedrich, 250 East 
Wisconsin Avenue, Milwaukee, Wisconsin 53202, appeared on behalf 
of defendant.
MEMORANDUM OPINION AND ORDER

	MURPHY, District Judge.
	*1 Plaintiff, David L. Arneson, brought this action for 
declaratory relief against defendant, TSR Hobbies, Inc. (TSR), 
alleging breach of contract. Jurisdiction is alleged under 28 
U.S.C. s 1332 and 28 U.S.C. s 2201. TSR has filed a counterclaim 
for declaratory and injunctive relief. This matter is now before 
the court upon the parties' cross-motions for summary judgment on 
the complaint and on one of the counts contained in the 
counterclaim.
                        Background
	The facts leading up to the publication of Monster Manual 
II, the subject matter of this royalties dispute are basically 
undisputed. Arneson and Gary Gygax collaborated in the 
development of a fantasy role-playing game entitled 'Dungeons 
and Dragons'. In 1980, Arneson brought an action against TSR and 
Gary Gygax, its principal officer, director, and shareholder, to 
recover damages and royalties relating to the publication of 
'Dungeon and Dragons' and 'Advanced Dungeon and Dragons'. In 
1981 the lawsuit was settled by means of the March 6, 1981 
agreement. This action seeks a declaration that TSR is in breach 
of that agreement.
                        A. The Agreement
	There are two main provisions in the agreement for royalties 
payable to Arneson. At issue in this action is the royalty 
provision applicable to a series of works published as 'Advanced 
Dungeons and Dragons'. The provision provides that defendant is 
obligated to provide royalties payments up to a maximum of 
$1,200,000.
	One of the works covered by this provision is a work 
entitled Official Advanced Dungeon & Dragons Monster Manual 
(Monster Manual). Monster Manual contains descriptions of a large 
number of creatures, over 300, that may be used in playing 
Advanced Dungeons and Dragons. It also contains the game rules 
for the use of the monsters in the play of the game. The work was 
copyrighted in 1977 and 1978, and Arneson has received 
substantial royalties from its sale.
	Paragraph 6(g) of the agreement provides that TSR will pay 
Arneson a royalty of 2 1/2 % of the cover price for every copy 
sold of Monster Manual. Monster Manual is defined in paragraph 
7(f) of the agreement to include 'the book currently published by 
TSR entitled 'ADVANCED DUNGEONS & DRAGONS Monster Manual' (2009) 
and any revised edition or foreign language translation thereof.' 
Paragraph 7(a) defines 'revised edition' to mean 'a printed work 
having a title the same as or similar to the related earlier 
work, revised to include changes or additions to the text, but 
continuing to include substantially the same rules and subject 
matter as contained in the earlier work.'
	The royalties are to be paid quarterly as provided in 
paragraph 11. Paragraph 17 expressly provides that 'failure to 
pay, when due, any and all amounts required to be paid pursuant 
to paragraph 6 and 15 above' constitutes a default on the part of 
TSR under the agreement, if not remedied by TSR within 30 days 
after receiving written notice of said failure to pay from 
Arneson. Paragraph 17(h) creates a limited exception to this 
procedure:  *2 If there is a good faith dispute as to Arneson's 
royalty or compensation entitlement to a new item which does not 
currently exist and which does not constitute a revised edition 
or a foreign language translation of a currently existing item, 
but said new item is alleged by Arneson to fall under a more 
general definition contained herein, then TSR's failure to make 
payments on said new item shall not be deemed to be a default 
until there is a written agreement resolving the disputes to said 
new item between the parties, or until final resolution of the 
good faith dispute by a Court, but only if not remedied by TSR 
within thirty (30) days after a final resolution requiring TSR to 
make payments on the new item.
                        B. The Dispute
	In 1983, TSR published Official Advanced Dungeons & Dragons 
Monster Manual II (Monster Manual II). This work contains the 
description of over 300 new creatures. These are new monsters 
that are to be used in addition to the monsters listed in Monster 
Manual in playing Dungeons and Dragons. It also contains the 
same game rules as in Monster Manual and includes an index to all 
creatures listed in Monster Manual, Monster Manual II and the 
Fiend Folio Tome.
	The dispute between the parties centers on whether Monster 
Manual II is a 'revised edition' of Monster Manual under the 
terms of the settlement agreement between the parties. TSR 
initially, for a period of approximately one year, made royalty 
payments to Arneson on Monster Manual II totalling $108,703.50. 
These payments stopped on November 2, 1984 when TSR sent a letter 
to Arneson stating that the payments on Monster Manual II had 
been made inadvertently and by mistake because it is not a 
'revised edition' of Monster Manual. The letter went on to state 
that TSR was therefore crediting the overpayment against the 
$60,238.68 third quarter (1982) royalty otherwise due on other 
works and that there remained an overpayment of $48,464.82, which 
would be credited by TSR against subsequent quarterly royalty 
amounts. Arneson, through his attorney, responded in a letter 
dated November 5, 1984 informing TSR that it has no right to 
credit or offset royalty payments owing on items other than 
Monster Manual II and that such actions have placed TSR in 
default under paragraph 17 of the contract. This action was filed 
on November 14, 1984.
	TSR has filed a counterclaim against Arneson seeking a 
declaration of its right to set-off the $108,703.50 and also 
asserts three other counterclaims that are not part of these 
motions before the court. [FN1]
Discussion
	Under Rule 56 of the Federal Rules of Civil Procedure, a 
motion for summary judgment may be granted only if the pleadings 
and affidavits show that 'there is no genuine issue as to any 
material fact and that the moving party is entitled to judgment 
as a matter of law.' Fed. R. Civ. P. 56(c). Disputes involving 
the interpretation of unambiguous contracts are approriate cases 
for summary judgment. Jackson v. Roosevelt Federal Savings & Loan 
Ass'n, 702 F.2d 674, 684 (8th Cir. 1982); Parish v. Howard, 459 
F.2d 616, 618 (8th Cir. 1972). Construction of a contract is 
essentially one of determining the intent of the parties; it is 
normally a matter of law for the court. Armstrong v. Colleti, 88 
Wis.2d 148, 276 N.W.2d 364, 366 (Wis. Ct. App. 1979). However, 
where a contract is ambiguous, summary judgment 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 is reasonably susceptible of more than one meaning. 
Patti v. Western Machine Co., 72 Wis. 2d 348, 241 N.W.2d 158, 160 
(1976).
	*3 Both parties claim that the language of the 1981 
agreement is unambiguous but argue for opposite conclusions.
	Arneson asserts that at a minimum he is entitled to 
royalties at 2 1/2 % for the works admittedly covered by the 
settlement agreement without any right of impoundment or set-off 
by TSR for royalties it claims to have erroneously paid on 
Monster Manual II. He claims that TSR is in default on the 
agreement regardless of whether Monster Manual II is a revised 
edition because TSR has failed to pay the $60,238.68 admittedly 
owing. He also asserts that even if the $108,703.50 in royalties 
was paid by mistake, TSR cannot recover any of the money because 
it was a mistake of law.
	Arneson's main contention is that he is entitled to 
royalties at 2 1/2 % on the sales of Monster Manual II because it 
is a 'revised edition' of Monster Manual as defined in paragraph 
7(a) of the agreement. Arneson states that the only issue is 
whether Monster Manual II includes substantially the same subject 
matter as Monster Manual. Arneson argues that both manuals 
purport to be an alphabetical compendium or listing of the 
monsters found in Advanced Dungeons and Dragons. He claims that 
the preface in Monster Manual II written by the author, Gary 
Gygax, makes it clear that the new manual is simply an expansion 
of Monster Manual which will some day comprise three or four 
books as additional monsters continue to be added. Finally, he 
argues that the identical formats and purpose of the manuals 
establishes that Monster Manual II involves the same subject 
matter and that the new monsters are merely additions to the 
original text.
	TSR contends that paragraph 17(h) allows it to withhold 
payments made for Monster Manual II. It claims that Monster 
Manual II is a 'new work' and by crediting the mistaken payments 
made against royalties otherwise due, it is availing itself of 
the provision in 17(h) that 'failure to make payments on said new 
item shall not be deemed to be a default . . .' It therefore can 
continue to withhold payments and is not in default on the 
agreement.
	TSR argues that Monster Manual II does not include 
substantially the same subject matter as Monster Manual and 
therefore is not a revised edition. It also argues that Monster 
Manual II does not include changes or additions to the text, but 
rather that the vast majority (97%) was an entirely new work. It 
notes that the definition of 'subject matter' is 'the substance 
of a . . . book . . . as distinguished 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 II may have the same general 'subject', i.e., monsters, 
the 'substance' of the books, namely the descriptions of 
monsters, are not the same. TSR concludes that if Monster Manual 
II is not a revised edition it can properly recover the 
$108,703.50 already paid in royalties, because the payments 
involved a mistake of fact. Furthermore, TSR claims the right to 
extinguish this debt by withholding future royalties on other 
items because mutual debts extinguish each other by operation of 
law.
	*4 The language of the 1981 agreement between the parties 
is controlling on the issues raised by the parties. The court has 
carefully reviewed the disputed contractual provisions and all of 
the materials submitted by the parties and finds that the 
contract is unambiguous and compels a finding that Arneson is 
entitled to summary judgment. Under paragraphs 6(g) and 7(a) 
Monster Manual II is a revised edition of Monster Manual, and 
Arneson is entitled to royalties for its sales. The failure of 
TSR to make payments on royalties admittedly owing, because it 
was withholding them as an off-set to the payments it had made on 
Monster Manual II, constitutes a default under paragraph 17 of 
the agreement on the part of TSR.
	In order to be entitled to royalty payments on Monster 
Manual II, Arneson must establish that as a matter of law this 
work constitutes a 'revised edition' of Monster Manual, as that 
term is defined in paragraph 7(a) of the settlement agreement. 
There is no dispute that the two works have the same or similar 
title and include substantially the same rules. TSR, however, 
argues that Monster Manual II does not satisfy the remaining 
criteria for a revised edition.
	Under any reasonable interpretation of the language of the 
agreement, the subject matter of the works are substantially the 
same. Words appearing in a contract 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 a discussion, book, 
writing, etc., as distinguished from its form or style.' Random 
House Dictionary 1415. [FN2] It is also defined as 'matter 
presented for consideration; as a: the essential facts, data or 
ideas that constitute the basis of spoken, written, or artistic 
expression or representation; often; the substance as 
distinguished from the form of an artistic or literary 
production.' Webster's Third International Dictionary 2276.
	The substance of both these works is a listing and 
description of monsters to be used in playing Advanced Dungeons 
and Dragons. Both works are identical in their purpose and 
application; they are to be used as a reference source for the 
playing of Advanced Dungeons and Dragons. TSR contends, however, 
that while the manuals may have the same general 'subject', the 
'substance' of the two works is the specific descriptions of 
monsters and these are completely different. Obviously, the new 
monsters differ from the ones contained in Monster Manual and 
also from each other. Each monster has different capabilities 
that come to bear on the playing of the game. Yet, those same 
differences exist between each of the monsters listed in Monster 
Manual itself. While the substance of the description of each 
monster is different, a common theme exists for the complete 
work.
	The unifying basis of the two works, their essential idea, 
is that these parts make up a whole; an encyclopedia of creatures 
for the Advanced Dungeons and Dragons game system. See Preface to 
Monster Manual II. Just as the editions of an encyclopedia are 
published every few years, Monster Manual has been expanded to 
include new creatures. Id. TSR's decision to place these new 
monsters in a separate volume is a difference of mere form and 
does not alter or impact on the substance of the material within. 
If the new creatures had been interspersed alphabetically into 
the existing volume, it would have been apparent at first glance 
that the addition of monsters involves identical subject matter. 
The inclusion in Monster Manual II of a common index of all 
monsters and charts rating monsters from both volumes further 
demonstrates the unity of the two works.
	*5 This decision is supported by the language of the 
Monster Manual itself. The definition of revised edition and the 
foreward and preface to the Monster Manual evidence that 
additions to the work were contemplated and that, specifically, 
the addition of new monsters was forseen. Indeed, from 1977 on, 
the author, Gary Gygax, was 'designing and collecting monsters 
with the aim of publishing a second volume.' Preface to Monster 
Manual II. The addition of new monsters is also consistent with 
the proclaimed subject matter of Monster Manual as 'AN 
ALPHABETICAL COMPENDIUM OF ALL OF THE MONSTERS 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 it involves 
substantially the same subject matter.
	This ruling makes it necessary to resolve only one other 
issue now raised by the parties. TSR argues that its set-off of 
payments admittedly owing was not a breach of paragraph 17 of the 
agreement placing it in default. Its reliance on paragraph 17(h) 
is misplaced in this instance, however. Under the plain meaning 
of 17(h) payment can be withheld only on the contested 'new' 
item. TSR withheld payments on royalties admittedly owing and 
thus is in default on the agreement under paragraph 17. [FN3]
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 for summary 
judgment is granted.
	2. David L. Arneson is entitled to royalties from the sales 
of Monster Manual II at the rate and in the amount provided for 
in the March 6, 1981 agreement.
	3. The actions of TSR Hobbies, Inc., in withholding 
quarterly royalty payments as a credit on overpayment of 
royalties on Monster Manual II place it in default under 
paragraph 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 David L. Arneson 
on the first counterclaim of TSR Hobbies, Inc.

	FN1 TSR alleges in its second and third counterclaims that 
Arneson is preparing a derivative work from Dungeons and Dragons 
in violation of the agreement and the copyright laws. The fourth 
counterclaim alleges that Arneson has improperly attempted to 
convey and conveyed rights to use TSR's  Dungeon and Dragon 
trademark.

	FN2 TSR makes a great deal out of Arneson's misquote of this 
definition as 'the subject of a discussion' rather than the 
substance. While TSR claims the distinction is crucial, the 
differences it attempts to draw are tenuated and of no bearing on 
the result because the subject matters are substantially the same 
even under the definitions put forth by TSR.
	FN3 TSR has moved for summary judgment on its first 
counterclaim which is the flip side of the complaint. TSR seeks a 
declaration that no royalties are owing on Monster Manual II and 
that it has the right to treat the payments made on it as an 
advance royalty payment against other royalties due, unless and 
until the court finally determines that royalties are owing on 
Monster Manual II. The court's analysis decides these issues in 
favor of Arneson and, accordingly, he is entitled to summary 
judgment on the first counterclaim. Northland Greyhound Lines, 
Inc. v. Amalgamated Ass'n, 66 F. Supp. 431, 432-33 (D. Minn. 
1946), appeal dismissed, 157 F.2d 329 (8th Cir. 1946); see Pueblo 
of Santa Ana v. Mountain States Tel. & Tel. Co., 734 F.2d 1402, 
1408 (10th Cir.), cert. granted, 105 S. Ct. 242 (1984).
END OF DOCUMENT