Mulberry Square Productions, Inc. v. State Farm Fire and Cas. Co.

• Decision Date: 12 December 1996
• Docket Number: No. 95-60679,95-60679
• Citation: 101 F.3d 414
• Parties: MULBERRY SQUARE PRODUCTIONS, INCORPORATED, a Mississippi Corporation, Plaintiff-Appellant, v. STATE FARM FIRE AND CASUALTY COMPANY, Does 1 through 100, Inclusive, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 414

101 F.3d 414

MULBERRY SQUARE PRODUCTIONS, INCORPORATED, a Mississippi Corporation, Plaintiff-Appellant, v. STATE FARM FIRE AND CASUALTY COMPANY, Does 1 through 100 Inclusive, Defendant-Appellee.

No. 95-60679.

United States Court of Appeals Fifth Circuit.

Dec. 12, 1996.

Andrew N. Alexander, III, Shawn N. Sullivan, Lake, Tindall & Thackston, Greenville, MS, George E. Hedges, Hedges & Caldwell, Los Angeles, CA, for plaintiff-appellant.

Harry R. Allen, Elizabeth Colette Towles, Allen, Vaughn, Cobb & Hood, Gulfport, MS, for defendant-appellee.

Appeal from the United States District Court for the Southern District of Mississippi.

Before BENAVIDES, STEWART and DENNIS, Circuit Judges.

STEWART, Circuit Judge:

This case arises out of a movie deal gone bad. At the center of the controversy is the lovable star canine character we all know as Benji TM. But this case is not about Benji TM himself. Rather, we must decide whether State Farm Fire and Casualty Company (State Farm) had a duty to defend the owner of the intellectual property rights in Benji TM for alleged wrongful conduct. The district court granted State Farm's motion for summary judgment, holding that State Farm had no duty to defend the plaintiffs for counterclaims the district court believed arose from a breach of contractual duties. The plaintiffs appeal. We affirm, but for slightly different reasons than those articulated by the district court.

FACTS

A. The Three Players

We begin by introducing the players to this controversy. Mulberry Square Productions, Incorporated (Mulberry), a Mississippi corporation, developed, produced, and marketed family entertainment from 1990 to 1994. Mulberry holds trademark rights in Benji TM and is the owner (in two instances, the co-owner) of all copyrighted works portraying the character Benji TM. Mulberry is owned by Joseph (president) and Carolyn Camp (vice president).

H.P. Films, Incorporated (HP Films), a Florida corporation, engaged in the business of film financing, production, distribution, and exploitation. The record suggests that the two persons affiliated with HP Films, and who were involved in the underlying movie deal, were relatively inexperienced in the movie industry.

Vision International (Vision), a California corporation, is a film financing, production, distribution, and exploitation company specializing in the distribution of films made in the United States to foreign theater markets. Vision was a widely known company within the entertainment industry.

B. The Deal to Produce a Motion Picture Starring Benji TM--A Tale of Deception and Double-Dealing

Sometime in the summer of 1992, agents for HP Films met with the Camps (who represented Mulberry) in Florida to discuss a movie starring Benji TM entitled HOME FOR CHRISTMAS. At that meeting, Joe Camp explained the unique characteristics of the Benji TM character, his concern over creative controls, and Mulberry's requirements for use of the Benji TM character and trademark. HP Films's agents told the Camps that they were in agreement with the Camp's representations regarding Benji TM; that they were interested in producing a family film; that they liked the HOME FOR CHRISTMAS screenplay; and that they had a distribution agreement with Vision, who would have the right to distribute the film to foreign markets. HP Films's agents stated that Vision would have no rights to request revisions or rewrites, and that once Vision approved the screenplay, financing for the film would be in place.

The Camps returned home and a term sheet was drafted which represented the agreement of the parties pending a more detailed long-form contract. A signed version of the term sheet was completed by September 18, 1992.

HP Films promptly engaged in double-dealing and deception in an effort to wrest away from the Camps the rights to Benji TM. The agents for HP Films met with Vision's representative, who did not like the HOME FOR CHRISTMAS screenplay. HP Films then began to tinker with the story line. Without the Camp's consent, in October 1992, at an international film festival held in Milan, Italy, one of HP Films's agents marketed the HOME FOR CHRISTMAS screenplay under the Although unaware of HP Films's and Vision's plans, Joe Camp refused to make the script changes in HOME FOR CHRISTMAS that would have made the film more appealing in foreign markets. In an effort to accommodate Vision and HP Films, however, Joe Camp proposed a new film titled BENJI-BENJI, although the script had not yet been written. The term sheet was correspondingly modified to reflect this change, satisfy Vision, and make it possible to procure a financing guarantee. Under the amendment, the Camps retained the same creative and character control they had under the original term sheet. An important provision within the amendment read as follows:

                title "BENJI'S NIGHT OUT."." 1  HP Films was ultimately unsuccessful in securing funding for HOME FOR CHRISTMAS or any other rendition of Camp's screenplay
                

In the event [HP Films] has paid the full amount of $250,000 for the services of CAMP in connection with the NEW SCREENPLAY, all right, title and interest in and to the NEW SCREENPLAY and the copyright therein shall pass to [HP Films;] however, [HP Films] must utilize the services of CAMP, C. CAMP and JOE CAMP III for any production based upon the NEW SCREENPLAY, subject to the CAMPS first availability, and [HP Films] must acquire the BENJI RIGHTS for the NEW SCREENPLAY, all for the same compensation and on the same terms as set forth herein.

The amendment was signed on December 2, 1992.

On December 4, 1992, Joe Camp traveled to Los Angeles and made a detailed scene-by-scene presentation of BENJI-BENJI to Vision and HP Films. Vision and HP Films approved the presentation, subject to minor changes to which Joe Camp agreed.

C. Nepotism, Acrimony, a Lawsuit, and a Counterclaim--Enter State Farm

Under the terms of the agreement between the parties, Carolyn Camp was principally responsible for casting. One of HP Films's agents suggested that his thirteen-year-old daughter, Ariana, be cast in the role as the feature character. Because Joe Camp had envisioned an eight-year-old girl to play the part, Carolyn Camp rejected Ariana for the part.

The relationship between the parties soured considerably in February 1993. The Camps traveled to Los Angeles to attend a "Vision Day" luncheon at which Vision was presenting a gala for prospective foreign buyers. The Camps understood that BENJI-BENJI would be introduced. While in Los Angeles, at the request of Vision and HP Films, the Camps met with Ariana. At that time, the Camps reiterated their position that Ariana was too old for the feature part.

The Camps then discovered that HP Films had assisted Vision in running a full-page advertisement in Variety Weekly that failed to give the appropriate copyright credits to Joe Camp and Mulberry and that was not approved by the Camps. Ariana's father also informed the Camps that his daughter was going to play the feature role in the film whether the Camps liked it or not; that Ariana was invited to the luncheon so that she could be announced at the luncheon; that Joe Camp would be replaced as the screenwriter for BENJI-BENJI; and that Joe Camp would be fired as the director of the film. Enraged, the Camps canceled their plans to attend the luncheon and immediately left Los Angeles.

Mulberry thereafter sued Vision and HP Films. Vision and HP Films counterclaimed, alleging breach of contract, tortious interference with contract, and tortious interference with prospective economic advantage. Mulberry's suit against HP Films and Vision is not the subject of this appeal. Rather, this appeal concerns the counterclaims asserted against Mulberry. Specifically, Mulberry demanded that its insurer, State Farm, defend Mulberry in the counterclaims pursuant to Mulberry's comprehensive business liability policy. ² State Farm refused to provide coverage Meanwhile, Mulberry's lawsuit against HP Films and Vision was submitted to arbitration. In a lengthy, comprehensive report, the arbitrator ruled in favor of Mulberry. The arbitrator examined all of the documents submitted by the parties and concluded that "[t]he Camps and [HP Films] intended to be bound by the writings." Arb. Report & Decision, para. 18. In other words, a contract existed between Mulberry and HP Films, such that

on the ground that the allegations in the counterclaims did not trigger coverage under the policy.

the Camps, by the writings, granted a conditional license to [HP Films] to produce theatrical films using the character BENJI. The Camps did not assign to [HP Films], or in any other way transfer to [HP Films], expressly or by implication, the entire bundle of rights, both under the copyright and trademark laws of the United States, nor under the common law, relating to intellectual property with respect to BENJI.

Arb. Report & Decision, para. 27.1. The arbitrator concluded that HP Films materially breached the contract and that HP Films was not entitled to recover under its counterclaims against Mulberry.

THE COUNTERCLAIMS AND THE RELEVANT POLICY PROVISIONS

Approximately one year after the arbitrator rendered its decision in favor of Mulberry, Mulberry filed suit against State Farm in the Southern District of Mississippi, claiming that State Farm, in bad faith, refused coverage and a defense to the counterclaims filed against Mulberry. State Farm moved for summary judgment, claiming that it had no duty to defend or indemnify Mulberry for the allegations in the counterclaims. Before we present the district court's ruling on State Farm's motion, we first present the portions of the counterclaims and provisions of the State Farm policy that are at issue in this case.

A. The Counterclaims

Because Mulberry did not claim that the breach of contract counterclaims triggered coverage under the business policy, we concern ourselves here with only...