Gerritsen v. Warner Bros. Entm't Inc.

Decision Date12 June 2015
Docket NumberCase No. CV 14–03305 MMM (CWx).
Citation116 F.Supp.3d 1104
CourtU.S. District Court — Central District of California
Parties Terry T. GERRITSEN, an individual, Plaintiff, v. WARNER BROS. ENTERTAINMENT INC., a Delaware corporation; Katja Motion Picture Corp., a California corporation; and New Line Productions, Inc., a California corporation, Defendants.

Glen L. Kulik, Natalie N. Mutz, Kulik Gottesman and Siegel LLP, Sherman Oaks, CA, for Plaintiff.

Ashley K. Pearson, Laura E. Lorenz, Matthew T. Kline, O'Melveny and Myers LLP, Los Angeles, CA, Michelle Inouye Schultz, Warner Bros. Entertainment Inc., Burbank, CA, for Defendants.

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS PLAINTIFF'S FIRST AMENDED COMPLAINT

MARGARET M. MORROW, District Judge.

On April 29, 2014, Terry T. Gerritsen filed this action against Katja Motion Picture Corporation ("Katja"), New Line Productions, Inc. ("New Line"), and Warner Brothers Entertainment, Inc. ("WB") (collectively, "defendants").1 On June 20, 2014, defendants filed a motion to dismiss Gerritsen's complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure.2 The court granted defendants' motion to dismiss with leave to amend on January 30, 2015.3 Gerritsen filed a timely first amended complaint on February 19, 2015,4 which defendants moved to dismiss on March 9, 2015.5 The same day, defendants filed a request that the court consider certain documents purportedly incorporated by reference in Gerritsen's first amended complaint.6 Gerritsen opposes both defendants' motion and their request that the court consider the allegedly incorporated documents.7

Pursuant to Rule 78 of the Federal Rules of Civil Procedure and Local Rule 7–15, the court finds this matter appropriate for decision without oral argument. The hearing calendared for June 15, 2015, is therefore vacated, and the matter is taken off calendar.

I. FACTUAL BACKGROUND
A. Facts Alleged in the First Amended Complaint
1. The Parties

Gerritsen is an international best-selling, award-winning author whose novels have frequently appeared on the New York Times Best Seller list.8 WB is in the business of developing, producing, distributing, and marketing motion pictures, including the 2013 film Gravity (the "Film").9 Robert Shaye formed New Line in 1967; Shaye and Michael Lynne operated the company as a motion picture studio until February 28, 2008.10 Gerritsen alleges that New Line created Katja as a wholly owned subsidiary for the purpose of acquiring literary properties and developing screenplays based on those properties.11 She contends that after Katja developed a screenplay, New Line decided whether to make a film based on the screenplay; if it decided to do so, New Line produced, or designated another related entity to produce, the film.12

Gerritsen asserts that since its inception, Katja has been the alter ego of New Line and that there is and has been a complete unity of interest and ownership between the two companies.13 Katja and New Line allegedly shared and still share the same offices and employees, and operated and still operate under the direction of the same officers and directors.14 They also allegedly shared the same telephone number.15 Gerritsen contends that the records of the California Secretary of State reflected the same representative for both New Line and Katja.16 She also alleges that New Line allegedly made all business decisions for Katja.17 Gerritsen asserts, on information and belief, that New Line funded Katja's operations and that, other than money New Line provided, Katja had no significant assets or resources and was thus undercapitalized for the business in which it was and is engaged.18

Gerritsen maintains that at all times relevant to this lawsuit, WB and New Line (while it was a movie studio) have tried to shield themselves from liability by creating a web of "units" and "divisions."19 Different units of WB allegedly serve different functions, such as owning the studio lot, acquiring literary material, producing films, and distributing films; Gerritsen contends that, in reality, WB totally controls all of the units.20 She asserts that, to mislead and frustrate creditors, WB and New Line formed several wholly owned subsidiaries, engaged in mergers, consolidations, and acquisitions with other existing companies, and periodically changed the names of the units.21 Gerritsen also alleges, on information and belief, that at different times New Line has used the names "New Line Productions, Inc.," "New Line Film Productions, LLC," "New Line Cinema Corporation," "New Line Cinema," "New Line Cinema, LLC," "New Line Cinema Picturehouse Holdings, Inc.," "New Line Distributions, Inc.," "New Line Distribution Services, Inc.," "New Line Home Entertainment, Inc.," "New Line International Releasing, Inc.," "New Line International, Inc.," and "New Line Television, Inc.," several of which are allegedly listed in the records of the California Secretary of State and are active today.22 WB has allegedly operated under an even larger number of names.23 Gerritsen contends that WB and New Line have created a business structure so complex that individuals who run the studio frequently cannot keep the entities' relationships and their multiple titles straight.24

2. General Factual Background

In 1999, Gerritsen completed a novel titled Gravity (the "Book"), which was published by Simon and Schuster in September of that year.25 Gerritsen alleges that the Book, set in orbital space, features a female doctor/astronaut who is stranded alone aboard a space station after disasters kill the rest of the crew; the Book details her struggle to survive.26 Gerritsen asserts she did extensive research prior to and while writing the Book to ensure that her depiction of NASA technology was realistic.27 She also maintains that writing the Book was the most daunting challenge of her career, because it involved months of research, which included visiting NASA facilities and conducting interviews.28

Based on a manuscript seen by their representatives before the Book was published, Katja and New Line purportedly entered into a written contract with Gerritsen (the "Contract") on March 18, 1999, to purchase motion picture rights to the Book, as well as "any and all versions thereof."29 The Contract provided that Katja would pay Gerritsen $1,000,000 in exchange for the motion picture rights.30 It also provided that if Katja produced a motion picture based on the Book, it would pay Gerritsen (1) a $500,000 production bonus and (2) contingent compensation equal to 2.5% of the defined net proceeds of the motion picture.31 Katja also agreed to give Gerritsen screen credit, on a separate card, in the main titles, and in the billing block of paid advertisements for the Film.32

Gerritsen alleges that at the time the Contract was signed, Katja was the alter ego of New Line.33 She contends that New Line used Katja as part of a comprehensive business strategy to acquire literary material and develop that material into viable motion picture screenplays ready for production; at that point, rights were purportedly assigned to New Line or an entity identified by it so that New Line or the designated entity could produce the film.34 New Line and Katja allegedly never intended to have Katja produce a motion picture based on Gerritsen's literary property at the time the Contract was signed; rather, they purportedly intended to have it create a screenplay based on the Book under New Line's supervision.35 Katja and New Line allegedly agreed that if New Line liked the screenplay, Katja would assign rights to the work to New Line or an entity chosen by it.36 New Line allegedly executed and delivered a Continuing Guaranty of Katja's obligations under the Contract, which guaranteed "full and faithful performance" by Katja.37

3. The Relationship Between WB, New Line, and Katja

On January 28, 1994, Turner Broadcasting System ("Turner") purportedly purchased New Line and Katja; in 1996, Turner was allegedly purchased by Time Warner.38 As a result, beginning in 1996, Time Warner allegedly owned two motion picture studios: WB and New Line.39 At the time Katja and New Line acquired the motion picture rights to Gerritsen's book, therefore, both companies were allegedly owned by Time Warner, which also owned WB.40

On February 28, 2008, Time Warner purportedly caused WB, New Line, and Katja to consolidate.41 Gerritsen asserts that the reason for the consolidation was that Time Warner did not believe it was efficient or economically viable to own and operate two separate movie studios.42 She contends, on information and belief, that because Time Warner was the sole owner of WB, New Line, and Katja, neither New Line nor Katja received any consideration in connection with the consolidation; this purportedly left "no money available" for New Line's and Katja's creditors following the consolidation.43

On the date of the purported consolidation, Time Warner's Chief Executive Officer ("CEO"), Jeff Bewkes, allegedly sent a publicly disclosed memorandum announcing the consolidation to Time Warner employees, which stated: "Today it was announced that New Line Cinema will be operated as a unit of Warner Bros. Entertainment."44 The same day, Shaye and Lynne, New Line's departing Co–Chairmen, announced the consolidation in a memorandum to New Line's employees, which was purportedly published in the press. It stated: "This afternoon, Time Warner is announcing that New Line will become a unit of Warner Bros."45

Following the consolidation, New Line and Katja purportedly became units of WB.46 Gerritsen alleges, on information and belief, that the companies have effectively operated as a single entity since the date of the consolidation.47 She asserts that defendants have held themselves out as a single entity to the public;48 as evidence of this, she pleads that (1) Time Warner issued press releases announcing the consolidation of WB and New Line and its impact; and (2) Time Warner's Form 10K...

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