Wolf v. Walt Disney Pictures and Television

• Decision Date: 09 May 2008
• Docket Number: No. B192656.,B192656.
• Citation: 76 Cal.Rptr.3d 585,162 Cal.App.4th 1107
• Court: California Court of Appeals Court of Appeals
• Parties: Gary K. WOLF et al., Plaintiffs and Appellants, v. WALT DISNEY PICTURES AND TELEVISION et al., Defendants and Appellants.

76 Cal.Rptr.3d 585

162 Cal.App.4th 1107

Gary K. WOLF et al., Plaintiffs and Appellants, v. WALT DISNEY PICTURES AND TELEVISION et al., Defendants and Appellants.

No. B192656.

Court of Appeal, Second District, Division 7.

May 9, 2008.

Rintala, Smoot, Jaenicke & Rees, Peter C. Smoot, J. Larson Jaenicke and Michael B. Garfinkel, Los Angeles, for Plaintiffs and Appellants Gary K. Wolf and Cry Wolf., Inc.

Shepphard Mullin Richter & Hampton, Martin D. Katz and Lisa N. Stutz, Los Angeles, for Defendant and Appellant Walt Disney Pictures and Television and Disney Enterprises, Inc.

PERLUSS, P.J.

Gary K. Wolf, author of the novel Who Censored Roger Rabbit?, and his company Cry Wolf!, Inc. (collectively Cry Wolf) appeal from the judgment entered after a jury awarded only limited damages in their breach of contract action alleging Walt Disney Pictures and Television (Disney) had failed to fully compensate Cry Wolf for its exploitation of the cartoon characters depicted in Wolfs novel. Cry Wolf contends the special verdict form unfairly highlighted Disney's theory of the case; the trial court erred in granting Disney's motions for nonsuit and directed verdict in connection with several of Cry Wolfs claims; and the court imposed an incorrect rate of prejudgment interest. Disney (including parent company and cross-complainant Disney Enterprises, Inc.) also appeals from the judgment, contending the trial court erred by submitting legal questions to the jury, denying its motions for judgment notwithstanding the verdict and awarding costs to Cry Wolf as the prevailing party. Although we reject most of the arguments raised in Cry Wolfs appeal and Disney's cross-appeal, we reverse the judgment to the extent it is based on an erroneous interpretation of the term "Purchaser" in the parties' agreements and remand the matter for further proceedings necessary to correct the impact of that error.¹

FACTUAL AND PROCEDURAL BACKGROUND²

1. The Creation of the Roger Rabbit Characters

In the novel Who Censored Roger Rabbit?, initially published in 1981, Wolf created the original characters of Roger Rabbit, Jessica Rabbit, Baby Herman and Eddie Valiant (the Roger Rabbit characters) and "Toontown," the place where Wolfs cartoon characters live. Shortly after the novel was published, Disney expressed interest in acquiring the rights to it. In 1981 Wolf agreed in a "short form option agreement" to grant Disney an option to purchase all rights in the novel, exclusive of certain limited publishing rights.

2. The 1983 Agreement

In 1983 Disney exercised its option to purchase the rights to the novel. The parties entered into a written purchase agreement (the 1983 Agreement) executed on Disney's behalf by Ronald Miller, then president of Walt Disney Productions. The 1983 Agreement, which superseded the 1981 "short form option agreement," expressly granted Disney the right to exploit the characters from the novel in a wide variety of contexts, including the right to produce television programs and motion pictures based on the book, the right to make and sell representations of Wolfs characters in connection with merchandising and advertising and to otherwise promote the Roger Rabbit franchise. Under the terms of the 1983 Agreement, Disney was under no obligation to exercise any of the rights granted to it and could assign or license any and all rights granted to it under the 1983 Agreement as it "s[aw] fit." In exchange, Disney agreed to give Wolf 2.5 percent of any motion picture net profits and 5 percent of the "gross receipts" it derived from its exploitation of the Roger Rabbit characters. The term "gross receipts" was not defined in the 1983 Agreement.

3. The 1989 Settlement Agreement

The 1988 movie "Who Framed Roger Rabbit," coproduced by Disney, was based on Wolfs novel. Following the film's extraordinary success, a dispute arose between Wolf and Disney as to Wolfs entitlement to compensation for Disney's exploitation of the Roger Rabbit characters. Wolf, through Cry Wolf, Inc., and Disney resolved their dispute by entering into a new agreement (the 1989 Settlement Agreement). In the 1989 Settlement Agreement Disney obtained the rights to Wolfs sequel to the novel. That agreement also granted Cry Wolf audit rights relating to Disney's accountings for the revenues derived from its exploitation of the Roger Rabbit characters. By its terms, the 1989 Agreement was intended to amend and supplement the 1983 Agreement, not to supplant or supersede it. As both Cry Wolf and Disney acknowledge, the 1989 Settlement Agreement did not alter the 1983 Agreement's provisions relating to Cry Wolf's entitlement to merchandising royalties as a percentage of Disney's gross receipts.

4. Cry Wolf's Lawsuit

Cry Wolf initiated the instant lawsuit in May 2001, after concluding that several audits of Disney's financial records had disclosed unreported and underreported revenue streams in relation to the merchandising of the Roger Rabbit characters. In the operative second amended complaint, Cry Wolf asserted causes of action for breach of contract, breach of fiduciary duty and breach of the implied covenant of good faith and fair dealing and sought declaratory relief and an accounting. As to the breach of contract claim, Cry Wolf alleged Disney had failed to report as part of its gross receipts the value in promotional benefits it had received from various agreements with third parties (such as Burger King, McDonalds and Eckard Kodak) in which Disney licensed to those companies the right to exploit the Roger Rabbit characters in exchange for the companies' agreement to promote the Roger Rabbit franchise. In addition, Cry Wolf alleged Disney had underreported or failed to report its gross receipts in connection with Disney's (1) sales of nationally-licensed Roger Rabbit merchandise at various Disney venues; (2) sales of Roger Rabbit merchandise available exclusively at Disneyland, Walt Disney World and The Disney Store (venue-exclusive merchandise); and (3) domestic sales of record, tape or compact discs connected with the Roger Rabbit characters. Finally, Cry Wolf alleged Disney had failed to compensate it for the nonmerchandising uses of the Roger Rabbit characters at Disney's foreign theme parks.

Disney responded to the complaint by filing a demurrer to the breach of fiduciary duty cause of action. The trial court sustained the demurrer without leave to amend on the ground there was no fiduciary relationship between Disney and Cry Wolf, a conclusion this court affirmed when we denied on the merits Cry Wolf's petition for a writ of mandate seeking to vacate the trial court's order. (See Wolf v. Superior Court (2003) 107 Cal.App.4th 25, 130 Cal.Rptr.2d 860 (Wolf I).)

5. Disney's Cross-complaint

Following its successful demurrer to the cause of action for breach of fiduciary duty, Disney answered the complaint and filed its own cross-complaint asserting causes of action for declaratory relief, reformation, money had and received and unjust enrichment.³ Disney alleged that it not only had adhered to its obligations under the 1983 Agreement and 1989 Settlement Agreement, but also had overpaid Cry Wolf. According to Disney, in computing Cry Wolf's royalties, it had erroneously paid a percentage of the gross receipts of all Disney entities involved in the exploitation of the Roger Rabbit characters instead of receipts earned by Walt Disney Productions (and its successor in interest, Disney Enterprises, Inc.), the Disney parent company that had entered into the 1983 Agreement and the 1989 Settlement Agreement. Disney sought return of those overpayments and a judicial determination in the form of declaratory relief that, under the 1983 Agreement, as amended by the 1989 Settlement Agreement, it had no obligation to pay Cry Wolf (1) the value of its promotional agreements for which it received only nonmonetary consideration; (2) a royalty in connection with its nonmerchandise-related use of the Roger Rabbit characters in its theme parks; or (3) a royalty in connection with its resale of nationally-licensed merchandise.

6. Disney's Summary Adjudication Motion

In October 2002 Disney moved for summary adjudication of its claim seeking a judicial determination it had no obligation to pay Cry Wolf for nonmonetary consideration received in connection with its promotional agreements with third parties. Disney argued the clear and unambiguous meaning of the term "gross receipts" in the 1983 Agreement could only include receipt of cash money.⁴ Wolf argued the term was ambiguous, proffering with his opposition papers expert testimony that the term "gross receipts" was commonly understood in the entertainment industry to refer to both the total amount of money and the value of all nonmonetary consideration received unless otherwise expressly specified in the contract.

The trial court granted Disney's summary adjudication motion. Cry Wolf petitioned this court for a writ of mandate, arguing triable issues of material fact existed as to the meaning of the term "gross receipts" and whether it was intended to include the value of nonmonetary benefits Disney received in connection with its promotional agreements. Following briefing and oral argument, we granted the petition and directed the trial court to vacate its summary adjudication order on the ground the evidence established the term "gross receipts" as used in the 1983 Agreement was ambiguous and triable issues of fact existed as to whether that term was intended to include the value of nonmonetary benefits. (See Wolf v. Superior Court (2004) 114 Cal.App.4th 1343, 1355, 8 Cal. Rptr.3d 649 (Wolf II).)⁵

7. The Bifurcated Jury Trial: Phase One

a. Disney's successful motions for nonsuit

The case was tried to a jury in bifurcated proceedings. Phase one of the jury trial in March 2005 was directed to the intended meaning of certain contractual terms (such as "gross receipts") that had been determined to present...