Wyler Summit Partnership v. Turner Broadcasting System, Inc.

• Decision Date: 30 January 1998
• Docket Number: No. 96-16329,96-16329
• Citation: 135 F.3d 658
• Parties: 98 Cal. Daily Op. Serv. 823, 98 Daily Journal D.A.R. 1102 WYLER SUMMIT PARTNERSHIP, a partnership, Plaintiff-Appellant, v. TURNER BROADCASTING SYSTEM, INC., a Georgia corporation, and Turner Entertainment Co., a Georgia corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 658

135 F.3d 658

98 Cal. Daily Op. Serv. 823, 98 Daily Journal

D.A.R. 1102

WYLER SUMMIT PARTNERSHIP, a partnership, Plaintiff-Appellant, v. TURNER BROADCASTING SYSTEM, INC., a Georgia corporation, and Turner Entertainment Co., a Georgia corporation Defendants-Appellees.

No. 96-16329.

United States Court of Appeals Ninth Circuit.

Argued and Submitted July 17, 1997.

Decided Jan. 30, 1998.

Jonathan R. Bass, Charles R. Breyer, Coblentz, Cahen, McCabe & Breyer, San Francisco, California, for plaintiff-appellant.

Joel Linzner, Margaret C. McHugh, Townsend and Townsend and Crew, San Francisco, California, for defendants-appellees.

Appeal from the United States District Court for the Northern District of California Saundra Brown Armstrong, District Judge, Presiding. D.C. No. C95-3542-SBA.

Before: FARRIS and TASHIMA, Circuit Judges, and STAGG, Senior District Judge ^*

Opinion by Judge STAGG; Dissent by Judge TASHIMA.

STAGG, Senior District Judge:

This case concerns a contract dispute between the Wyler Summit Partnership ("Wyler Summit") and Turner Broadcasting System, Inc., and Turner Entertainment Co. (hereinafter collectively referred to as "Turner"). At issue is the effect of certain provisions of a 1958 contract between film director William Wyler ("Wyler") and MGM-Loew's, Inc. ("MGM") for the direction of the film classic Ben Hur. Wyler Summit, Wyler's successor in interest to the Ben Hur contract, brought suit against Turner, MGM's successor in interest, to recover compensation allegedly due thereunder. The district court granted Turner's motion to dismiss for failure to state a claim upon which relief can be granted. We affirm the district court's opinion in part, reverse in part, and remand for further proceedings in accordance herewith.

I. BACKGROUND

In 1958, Wyler entered into a written contract with MGM to direct the motion picture Ben Hur. In exchange for his services, MGM agreed to pay Wyler $350,000 plus a "percentage compensation" in the amount of three percent of the film's gross receipts in excess of $20 million (the "percentage compensation provision"). The contract further provided that this "percentage compensation" shall be payable "in annual installments not to exceed the sum of $50,000 in any one year" (the "installment payment provision"). ¹ Because of its extraordinary success, ² Ben Hur has--according to the latest figures available to the court--generated in excess of $3.3 million in total "percentage compensation" for Wyler and his heirs. ³ Of this sum, Wyler and his heirs have already been paid $1.8 million (in $50,000 annual payments). As a result of the installment payment provision, Turner retains another $1.5 million in deferred "percentage compensation" payable to Wyler's heirs. ⁴

Wyler's heirs have conveyed their interest in the Ben Hur contract to Wyler Summit, a California partnership composed solely of Wyler's heirs. It is undisputed that Wyler Summit is owed the deferred "percentage compensation" presently held by Turner (and any other deferred "percentage compensation" that might accrue in the future). However, Wyler Summit and Turner disagree as to when this debt is actually payable.

With the objective of having the installment payment provision judicially annulled and compelling Turner to remit the unpaid "percentage compensation," Wyler Summit filed suit against Turner in the Northern District of California on September 28, 1995. Wyler Summit sought (1) a reformation of the Ben Hur contract deleting the installment payment provision; (2) declaratory relief determining the parties' respective rights and obligations thereunder; and (3) a book accounting. In addition, Wyler Summit stated California state-law claims against Turner for breach of contract, unjust enrichment, breach of fiduciary duty, and breach of the implied duty of good faith and fair dealing.

In its complaint, Wyler Summit alleged that it is, in effect, being deprived of the lion's share of the economic benefit of Wyler's promised "percentage compensation" by the operation of the contract's installment payment provision. Specifically, Wyler Summit alleged that Turner is earning, and will continue to earn, a significant amount of interest income on the approximately $1.5 million in deferred "percentage compensation" held by it; that the original parties to the contract never contemplated that the $50,000 annual installment payment provision--which was inserted solely at Wyler's request to avoid income tax liability under the Internal Revenue Code of 1954 ⁵--would work to deprive Wyler or his heirs of this benefit; and that Turner has rejected the partnership's proposal to waive said provision. As a result thereof, Wyler Summit argued that Turner is enjoying an unbargained-for windfall at Wyler Summit's expense. ⁶ Accordingly, Wyler Summit prayed for a judgment, annulling the installment payment provision and ordering Turner to pay the partnership the accumulated "percentage compensation" in a lump sum. Only then, Wyler Summit argued, can an equitable result be realized.

On November 21, 1995, Turner filed a motion to dismiss the action pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, asserting, in the alternative, that Wyler Summit had failed to state a claim upon which relief can be granted; that all of the claims asserted by the partnership were time-barred; and that the equitable doctrine of laches barred the claims for reformation, unjust enrichment, and breach of fiduciary duty. Relying on the clear import of the contractual language in question, Turner contended in the memorandum supporting its motion that a maximum of $50,000 in "percentage compensation" is payable to Wyler Summit annually and that the deferred "percentage compensation" held by it will only be applied towards this sum in those years in which the "percentage compensation" due Wyler Summit does not exceed $50,000. Turner further contended that there is no certainty that Ben Hur will continue to generate "percentage compensation" for Wyler Summit in excess of $50,000 per year and that at some point in the future, the pool of deferred "percentage compensation" now held by it will be exhausted through annual payments to the partnership. Turner admitted that, in the meantime, it will earn and retain interest income on the deferred "percentage compensation" held by it, but insisted that this was the clear intent of the contract between Wyler and MGM.

After a thorough hearing on the matter, the district judge granted Turner's motion on June 19, 1996, dismissing all of Wyler Summit's claims. Wyler Summit appeals.

II. LAW AND ANALYSIS

We review de novo a district court's dismissal of a complaint for failure to state a claim upon which relief can be granted. See Stone v. Travelers Corp., 58 F.3d 434, 436-37 (9th Cir.1995); Peloza v. Capistrano Unified School District, 37 F.3d 517, 520 (9th Cir.1994), cert. denied, 515 U.S. 1173, 115 S.Ct. 2640, 132 L.Ed.2d 878 (1995). On a motion to dismiss, all well-pleaded allegations of material fact are taken as true and construed in a light most favorable to the non-moving party. See Parks School of Business, Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir.1995). Under Rule 12(b)(6), a complaint "should not be dismissed unless it appears beyond doubt that [the] plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Hydranautics v. Filmtec Corp., 70 F.3d 533, 535-36 (9th Cir.1995).

We affirm the district court's opinion except as follows. On appeal, Wyler Summit contends, inter alia, that the district court erred by dismissing its breach of contract claim against Turner. In its complaint, Wyler Summit alleged in pertinent part:

7. At the request and for the benefit of William Wyler, Loew's Incorporated agreed to pay the percentage compensation in annual installments not to exceed the sum of fifty thousand dollars (the "installment payment provision"). It is not the intent of the parties in including the installment payment provision in the contract to provide an economic benefit to Loew's Incorporated or to deprive William Wyler of the economic benefit of the percentage compensation.

....

11. Prior to the filing of this complaint, plaintiff communicated to Turner its willingness to waive the installment payment provision, which, as alleged above, had been included in the contract purely as a benefit to William Wyler. Turner rejected plaintiff's proposal that the installment payment provision be deleted from the contract and has refused to pay plaintiff the percentage compensation to which they are [sic] entitled, except as limited by the installment payment provision....

....

19. Turner's failure and refusal to pay to plaintiff the accumulated percentage compensation constitutes a breach of contract....

Excerpts of Record 3, 4, and 6. ⁷ The district court, however, dismissed this claim, concluding that Wyler Summit could not waive the installment payment provision because (1) the Ben Hur contract did not contain a clause authorizing such a waiver and (2) the provision at issue benefits Turner as well as Wyler Summit. We find that the district court incorrectly applied California contract law and the standards governing Rule 12(b)(6) motions with respect to this claim.

It is a well-established principle of California law that "a contracting party may waive conditions placed in a contract solely for the party's benefit." Sabo v. Fasano, 154 Cal.App.3d 502, 505, 201 Cal.Rptr. 270, 271 (Cal.App.2d Dist.1984). In fact, this maxim of contract law has appeared in California jurisprudence for more than nine decades since its first recognition by the California Supreme Court in Knarston v. Manhattan Life Ins. Co., 140 Cal. 57, 63, 73 P. 740, 741 (Cal.1903). See, e.g., WYDA Associates v. Merner, 42 Cal.App.4th 1702, 1714, 50 Cal.Rptr.2d 323, 330 (1st Dist.1996); Reeder v. Longo, 131 Cal.App.3d 291, 296, 182 Cal.Rptr. 287, 290 (2d...