This order addresses a demurrer filed in response to a lawsuit between Corday Productions and Sony Pictures Television over a production and distribution agreement for the television show "Days of Our Lives". The order denies the demurrer regarding the breach of contract claims but sustains it for the breach of fiduciary duty claim. While the agreement provides for profit sharing, the court found that producer-distributor relationships do not generally create fiduciary duties under California law.
This order addresses a demurrer filed in response to a lawsuit between Corday Productions and Sony Pictures Television over a production and distribution agreement for the television show "Days of Our Lives". The order denies the demurrer regarding the breach of contract claims but sustains it for the breach of fiduciary duty claim. While the agreement provides for profit sharing, the court found that producer-distributor relationships do not generally create fiduciary duties under California law.
This order addresses a demurrer filed in response to a lawsuit between Corday Productions and Sony Pictures Television over a production and distribution agreement for the television show "Days of Our Lives". The order denies the demurrer regarding the breach of contract claims but sustains it for the breach of fiduciary duty claim. While the agreement provides for profit sharing, the court found that producer-distributor relationships do not generally create fiduciary duties under California law.
Phillips ADR Enterprises 2 2101 East Coast Highway, Suite 250 Corona del Mar, CA 92625 3 (949) 760-5288 gfeess@phillipsadr.com 4 Judicial Referee 5 6 7 8 SUPERIOR COURT OF THE STATE OF CALIFORNIA 9 FOR THE COUNTY OF LOS ANGELES 10 CENTRAL DISTRICT 11 CORDAY PRODUCTIONS, INC., a New York Corporation, Case No. 19STCV04632 12 Plaintiff, ORDER RE: DEFENDANTS’ 13 DEMURRER v. 14 SONY PICTURES TELEVISION 15 INC., a Delaware Corporation, CPT HOLDINGS, INC., a Delaware 16 Corporation, COLUMBIA PICTURES INDUSTRIES, INC., a Delaware 17 Corporation, SCREEN GEMS, INC., a Delaware Corporation and DOES 1-10, 18 inclusive, 19 Defendants. 20 21 22 23 24 25 26 27 28
ORDER RE DEFENDANTS’ DEMURRER
Case No. 19STCV04632 1 I. BACKGROUND 2 In 1964, Corday Productions, Inc. (Corday) created and produced the daytime 3 soap opera, Days of our Lives, and entered into an agreement with Screen Gems, the 4 predecessor of CPT Holdings, Inc. (CPT), with respect to that series.1 The agreement 5 was superseded by a lengthy written agreement executed in May 1972 (referenced 6 throughout as “the Agreement”). (Yankelovitz Decl., Ex. A.) 2 The Agreement, 7 which is described as “in the form of a Production-Distribution Agreement” 8 established the terms and conditions under which Corday would produce and CPT 9 would distribute the series episodes. The series has aired on NBC on a nearly daily 10 basis for the past 55 years. Over that period, the Agreement has been amended three 11 times, most recently in 2013. (Id., Exs. B-D.) 12 The Agreement is at the center of a dispute between the parties that has 13 generated this lawsuit, in which Corday alleges that, since 2016, the revenues 14 generated by the series have precipitously declined due to CPT’s misconduct. (See 15 Compl., Paras. 1-2.) In substance, Corday contends that CPT has ceased making “any 16 meaningful effort” at distributing the series (Oppos. To Demurrer, at 3), has 17 deliberately miscalculated series profits (id.), has “deliberately deflated” the NBC 18 licensing fee (id.), and done so in the interest of promoting other shows it is 19 distributing, including its “wholly-owned daytime drama, The Young and the 20 Restless.” (Id., at 4.) In Corday’s view, CPT’s conduct represents a “total abdication 21 of its duties to provide sales representation and distribution for the Series.” (Id., at 3.) 22 Most specifically, Corday contends that CPT has abandoned all effort to market the 23 series in foreign markets, which has dramatically reduced Corday’s revenue stream. 24 (Compl., Paras, 9-10.) Corday further alleges that CPT has likewise made no effort to 25 1 The pending complaint is unclear as to the roles of the named defendants in this 26 dispute. When referring to defendants, this order will, in most instances, reference CPT Holdings, Inc. because its name appears on the most recent amendments to 27 2 the 1972 contract. (Yankelovitz, Exs. C & D.) CPT requests judicial notice of the Agreement and three subsequent amendments 28 thereto. Because these documents are generally referenced in the complaint and are not reasonably in dispute, the request for judicial notice is GRANTED. -1- ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 market the series in supplemental markets such as streaming video on demand (id., 2 Para. 24) or to exploit the 50 years of Days of our Lives episodes in its back catalog. 3 (Id., Para. 25.) 4 In the pending Complaint, Corday alleges that CPT’s conduct gives rise to 5 causes of action sounding in both tort and contract. CPT has responded to the 6 Complaint by demurring to each of the seven stated causes of action. CPT contends 7 that, accepting the allegations as true, none of the claims states a cause of action on 8 which relief can be granted. The issues raised by CPT’s demurrer are addressed 9 below. 10 II. DISCUSSION 11 A. Legal Standard 12 A demurrer tests the legal sufficiency of a pleading by asserting that the facts 13 set forth in the complaint fail to state a cause of action on which relief can be granted. 14 Award Metals, Inc. v. Superior Court, 228 Cal.App.3d 1128, 1131 (1991). The 15 demurrer treats “all material facts properly pleaded” as true, but does not assume the 16 truth of “contentions, deductions or conclusions of law.” Miles v. Deutsche Bank 17 National Trust Co., 236 Cal.App.4th 394, 400 (2015). 18 A complaint survives a demurrer if it states facts disclosing some right to relief. [Citation.] A demurrer may be 19 sustained without leave to amend where the nature of the plaintiff's claim is clear and under the applicable 20 substantive law it is plain that there can be no liability. [Citation.] 21 22 Award Metals, 228 Cal.App.3d, at 1131-32. 23 The standard is therefore clear: if the facts are adequate to support the cause of 24 action alleged, the demurrer must be overruled; if not, it should be sustained, and if 25 the facts make clear that amendment will not cure the defect, leave to amend should 26 be denied. 27 28 -2- ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 B. Breach of Fiduciary Duty 2 Corday asserts that the conduct alleged in the first cause of action, if proved at 3 trial, constitutes a breach of fiduciary duty. CPT contends that, as a matter of law, the 4 cause of action should be dismissed because the Agreement between the parties did 5 not create a fiduciary relationship. 6 The Agreement on its face is labeled as a “Production Distribution Agreement” 7 which CPT contends is dispositive because “a fiduciary relationship does not exist 8 between a producer and a distributor.” (Demurrer, at 4.) In support of that 9 proposition, CPT relies heavily on Wolf v. Superior Court, 107 Cal.App.4th 25 10 (2003), Recorded Picture Co. v. Nelson Entertainment, Inc., 53 Cal.App.4th 350, 370- 11 71 (1997), and Waverly Productions, Inc. v. RKO General, Inc., 217 Cal.App.2d 721, 12 732-34 (1963). Corday contends that the label is not controlling, that the cited cases 13 are distinguishable, and that the terms of the present agreement, notably profit sharing, 14 establish a joint venture, or at least a sales agency, either of which would make CPT a 15 fiduciary of Corday. (See Oppos., at 4; Compl. at Paras. 7, 44; Yankelovitz, Ex. A.) 16 Corday focuses much of its argument on April Enterprises, Inc. v. KTTV, 147 17 Cal.App.3d 805, 818-19 (1983). 18 There can be no argument that there are fiduciary duties associated with joint 19 ventures and agency relationships. Likewise, there is no doubt that substance prevails 20 over form and that a label on an agreement is not necessarily controlling. However, a 21 careful look at the overall agreement and the relationship between the parties shows 22 that it contains the indicia of a commercial, rather than a fiduciary, relationship. The 23 relationship created under the terms of the Agreement lacks critical elements of a joint 24 venture and the complaint does not, and could not, allege the existence of an agency 25 relationship. 26 1. Producer-Distributor Relationships are not Joint Ventures 27 Corday observes that the Agreement provides that Corday and CPT “share 28 equally in the profits” generated from the exploitation of the series. (Oppos., at 4.) In -3- ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 Corday’s view, this component of the Agreement is critical because profit sharing is 2 the “hallmark of a joint venture.” (Id. citing April Enterprises, Inc. v. KTTV, 147 3 Cal.App.3d 805, 818-19 (1983). This assertion is misleading because, while profit 4 sharing is a common element of a joint venture, cases like Wolf expressly hold that an 5 agreement that involves profit sharing without more does not give rise to a fiduciary 6 relationship. 107 Cal.App.4th, at 31. And though Wolf did not involve a production- 7 distribution agreement, it drew on precedent involving such agreements to reach its 8 conclusion by noting, “even distribution agreements, negotiated at arm's length, do not 9 create a fiduciary relationship between the product's owner and the distributor even 10 though both parties stand to benefit from the distributor's sales of the product.” 107 11 Cal.App.4th, at 32; see also Recorded Picture, 53 Cal.App.4th at 370-71 (“[I]f a 12 fiduciary relationship does not exist between a producer and a distributor, then no 13 such relationship exists between a producer and a subdistributor.”) Controlling case 14 law therefore teaches that producer-distributor relationships are ordinarily not 15 fiduciary in nature. 16 But even if there were no controlling precedent in these circumstances, an 17 evaluation and application of the elements of a joint venture to the facts of this case 18 leads to the same result. April Enterprises, 147 Cal.App.3d 805 (1983) on which 19 Corday places substantial reliance, indicates that mere profit sharing is not sufficient 20 to prove a joint venture. Rather, three elements must be shown; (1) an ownership 21 interest in the enterprise; (2) joint control over the enterprise; and (3) a sharing in the 22 profits of the enterprise. Orosco v. Sun Diamond Corp., 51 Cal.App.4th 1659, 1666 23 (1997); see also April Enterprises, 147 Cal.App.3d, at 819 (articulating the elements 24 as “(1) joint interest in a common business; (2) with an understanding to share profits 25 and losses; and (3) a right to joint control.”) Two of these three elements are not 26 present in this case. 27 28 -4- ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 a. Ownership 2 There is no dispute that Corday is the sole owner of Days of our Lives. 3 Corday alleges that it “is the owner and producer of Days of our Lives, (Compl. 4 Para. 3), and that it “is the owner of the Series and all rights therein.” (Compl., 5 Para. 39.) Thus, Corday concedes in its complaint that CPT has no ownership in 6 the property that is the product of the alleged joint venture. But Corday contends 7 in substance that ownership in the Series is beside the point under either the 8 Orosco or April Enterprises formulation of the elements of a joint venture. But 9 Corday fails to take the next step and allege facts that show that the parties had 10 ownership interests in a joint enterprise or a joint interest in a common business 11 that owned and controlled the property of the venture.3 Corday’s complaint and 12 argument assert in substance that, because the parties shared an interest in the 13 profits derived from CPT’s marketing and distribution efforts, that was enough to 14 establish a “joint interest in a common business.” However, Wolf unambiguously 15 rejected such a conclusion,107 Cal.App.4th, at 32, which would turn any business 16 collaboration with a profit-sharing component into a joint venture. The fact that 17 both parties expect to benefit from the distribution agreement does not establish 18 a common business in which the parties have a joint interest. Id. 19 At the hearing on the demurrer, Corday argued that Myrick v. Mastagni, 185 20 Cal.App.4th 1082, 1091-92 (2010) supports his argument. A close reading 21 suggests otherwise. Myrick involved a negligence action brought against building 22 owners by the heirs of persons killed when the building collapsed during an 23 earthquake. An issue on appeal involved the propriety of making the defendants 24 jointly and severally liable for the damages based on the jury’s finding of a joint 25
26 3 Corday has not provided a plausible basis for distinguishing between the April Enterprises and Orosco formulations (joint interest in a common business 27 versus ownership interest in the enterprise) and none is apparent. But it is not necessary to resolve any differences between the two cases because, 28 under either formulation, Corday has not and cannot allege a joint venture relationship. -5- ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 venture. Defendants argued that there was insufficient evidence to show that 2 each member of the joint venture had an ownership interest in the enterprise 3 that owned and operated the building. The appellate court, in reviewing the trial 4 record, rejected that argument. It found that all of the defendants had some 5 ownership interest in the operation of the building as a business, id., at 1091, and 6 that even if the jury was not properly instructed on the ownership element, the 7 error was harmless. Id., at 1092. Thus, by indicating that the evidence showed 8 that each of the defendants had some ownership in the building as a business, the 9 appellate court did not conclude, as Corday argues, that ownership is not an 10 element of a joint venture. In fact, the analysis implies that joint ownership of a 11 common enterprise, or of the property to be exploited in the enterprise, is a 12 necessary element of a joint venture. April Enterprises is consistent with this 13 conclusion because it noted that “the requisite interest in a common business is 14 supplied by the allegations that the parties planned to co‐produce the shows in 15 order to exploit the market for its syndication . . . .” Id., at 819. (Emphasis 16 added.) Moreover, each of the parties had some degree of control over the 17 exploitation in their production in syndication. Here CPT neither co-produced 18 Days of our Lives nor owned any interest in the Series or the rights therein. 19 (Compl., Para. 39.) The ownership/common enterprise element is therefore 20 missing. See also City of Hope National Health Center v. Genentech, Inc., 43 Cal.4th 21 375, 391 (2008) (complex agreement creating interrelated obligation of two 22 parties to develop and commercially exploit City of Hope’s intellectual property 23 regarding the synthesis of DNA to produce therapeutic proteins held not to 24 establish joint venture). 25 Here, as in Recorded Picture, Waverly, Wolf and City of Hope, the parties 26 have agreed to a collaboration in which CPT would provide financing and 27 distribution services with respect to a product, the television series, developed 28 and produced by Corday. But the parties have not undertaken to conduct a single -6- ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 business enterprise in which they each share an interest, or shared ownership 2 and control over the property to be exploited. Rather, each party operated its 3 respective enterprise which contributed its specialized expertise to a commercial 4 endeavor that both hoped would be (and for many years was) profitable. Such 5 agreements are common in the television industry and do not create a joint 6 venture.4 7 b. Control 8 The Complaint also fails to plead adequate facts to establish the control 9 element. Production was entirely in the hands of Corday; distribution was CPT’s 10 responsibility. Corday acknowledges as much by alleging that “it is the creative 11 engine behind Days of our Lives and is responsible for developing, producing, and 12 managing the Series.” (Compl., Para. 4.) This allegation is corroborated by the 13 Agreement which in its first paragraph identifies Corday as the series producer. 14 (Yankelovitz, Ex. A.) The Agreement contemplated that NBC would finance the 15 series through the licensing fee paid to Corday (Compl., Paras. 7, 42), but that CPT 16 would act as interim financier to the extent necessary before revenue was received 17 from NBC. (Ex. A, Para. 1.) The allocation of duties and responsibilities 18 demonstrates that the Agreement’s self-description as a “production distribution 19 agreement” was accurate. April Enterprises is readily distinguishable because it 20 involved an express agreement under which the parties would co-produce a television 21 program and share equally in the right to exploitation in syndication, which was the 22 basis for the court’s determination that the element of joint control had been 23 adequately pled. 107 Cal.App.3d at 819. 24 25
26 4 Corday references Paragraph 13 which is a provision regarding a transfer of “ownership” (quotes in the original text of Exhibit A) to third parties. But the 27 paragraph refers to transfers of its sales rights (not ownership in any entity or in the Series) and obligates CPT to give the same rights to Corday. It does not 28 refer to an interest of the type that would customarily establish the existence of a joint venture. -7- ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 Nevertheless, contrary to its own allegations, Corday contends that CPT had 2 control over the production by virtue of its financing role, its ability to approve the 3 executive producer and writers, and its control over sales of the show. But the parties 4 concede that the Series was financed through the NBC license and that CPT’s role was 5 to bridge the period between production and payment of the licensing fee. The 6 arrangement is similar to that described in City of Hope where Genentech financed 7 City of Hope’s synthesis of the DNA sequences that would then be used by Genentech 8 to manufacture certain protein sequences. 43 Cal.4th 381-82. Despite that financial 9 arrangement, the court found no joint venture between the parties. Moreover, the 10 Complaint makes it clear that NBC, and not CPT, ultimately had the power of the 11 purse in this relationship. (See Compl., Paras. 19-20 describing NBC intervention 12 when CPT allegedly refused to fund the Series). Accordingly, the interim financing 13 obligation does not give CPT control over the production of the Series. 14 As to the Executive Producer position, CPT in 1998 ceded authority to Corday 15 by pre-approving the retention of any family member in the position of Executive 16 Producer. (See Ex. B.) Likewise, the Complaint alleges no facts indicating that CPT 17 ever exercised any control over the selection of an Executive Producer or any writers, 18 and Paragraph 9(c) of the Agreement also gives certain approval rights to NBC, which 19 was a buyer, not a producer, of the Series. Finally, as to its control over sales of the 20 show, that is an activity separate and apart from production of the series. There is no 21 case cited holding that a distributor’s right to sell and distribute a television series 22 amounts to control over production of the series for what appear to be obvious 23 reasons. 24 In short, the Complaint makes it clear that, in every significant respect, Corday 25 handled all aspects of the production of Days of our Lives, and that CPT’s role was 26 that of marketer and distributor of the product of Corday’s efforts. 27 28 -8- ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 c. Profits 2 There is no question that the Agreement provided for some form of profit 3 sharing, but that arrangement was significantly modified a decade ago in an 4 amendment to the Agreement that eliminated aspects of the alleged profit-sharing 5 arrangement. In 2009, the parties agreed that Corday would receive all performance 6 bonuses payable by NBC, and that CPT would have no obligation to share in any 7 production costs in excess of an average weekly license fee of $775,000. To the 8 extent that CPT financed the cost overruns, the amendment provided that it would 9 recoup those outlays from distribution proceeds. Thus, by allocating a greater share of 10 the revenues to Corday, which then agreed to take on the burden of budget overruns, 11 the parties even more clearly delineated their respective and separate responsibilities. 12 If it weren’t clear before the amendment, the modification of the contract terms 13 highlighted the purely commercial, arm’s length nature of the parties’ relationship.5 14 On this point, Wolf and City of Hope are particularly noteworthy because those courts 15 held that a fiduciary relationship is not necessarily created even when one party 16 entrusts its intellectual property to its counter-party for development. Here Corday 17 maintained control over the ownership, development and production of its intellectual 18 property. In these circumstances, there is simply no basis for concluding that the 19 parties entered into a joint venture giving rise to a fiduciary relationship. 20 2. CPT Was Not Corday’s Agent 21 In its opposition, Corday argues that, even if the parties were not in a joint 22 venture, CPT was Corday’s Sales agent under the terms of the Agreement. (Oppos., at 23 7.) This argument suffers from two defects. First, despite Corday’s argument that is 24
25 5 Corday cites to the series credits indicating that Corday has produced the series “in association with” Screen Gems. But that ambiguous language, without more, does 26 not overcome the fact that Corday had undisputed ownership of the series and exercised control over its production. Likewise, Corday’s reference to language in 27 the Agreement regarding approval of writers’ contracts is not accompanied by any allegation that CPT ever exercised any of those purported rights. Without evidence 28 of an actual assertion of control, a joint venture does not exist. Orosco, 51 Cal.App.4th 1667. -9- ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 “adequately pled an agency relationship,” it offers only a citation to Ex. A, Paragraph 2 1, in support. The Complaint contains no allegation that CPT was Corday’s agent. 3 Second, the elements of an agency relationship are not present under the terms of the 4 parties Agreement. 5 As CPT notes in its reply, an agent is one who operates under the direction and 6 control of the principal. “The right of the alleged principal to control the behavior of 7 the alleged agent is an essential element which must be factually present in order to 8 establish the existence of agency, and has long been recognized as such in the 9 decisional law. [Citations.]“ Desuza v. Andersack, 63 Cal.App.3d 694, 599 (1976); 10 see also Batzel v. Smith, 333 F.3d 1018, 1035 (9th Cir. 2003) (agency relationship 11 created by agreement of parties and requires that agent not only act on behalf of 12 principal, but also “subject to the principal’s control”); Alvarez v. Felker, 320 13 Cal.App.2d 987, 1001 (1964) (distribution agreement giving control over sales to 14 distributor does not create an agency relationship).. Here the distribution agreement 15 gave CPT the responsibility for marketing Days of our Lives but gave it sole control 16 over that activity. Nowhere in the Agreement is Corday given the right to exercise 17 control over CPT’s conduct. While Corday may have the right, under contract, to 18 challenge the adequacy of performance, it has no right to proceed against the 19 distributor on an agency theory. 20 The demurrer to the Breach of Fiduciary Duty Claim is therefore SUSTAINED 21 WITHOUT LEAVE TO AMEND. 22 C. Fraud and Concealment 23 The fraud and concealment causes of action do not merit extended discussion. 24 Fraud claims must plead facts to establish each of the essential elements of the claim, 25 e.g., Hoffman v. 162 North Wolfe LLC, 229 Cal.App.4th 1178, 1185-86 (2014), and 26 must plead those facts with particularity. Tarmann v. State Farm Mut. Auto. Ins. Co., 27 2 Cal.App.4th 153, 157 (1991) (“Every element of the cause of action for fraud must 28 be alleged in the proper manner and the facts constituting the fraud must be alleged - 10 - ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 with sufficient specificity to allow defendant to understand fully the nature of the 2 charge made.’“) In the case of a corporate defendant, this obligation includes the 3 requirement that the plaintiff “allege the names of the persons who made the allegedly 4 fraudulent representations, their authority to speak, to whom they spoke, what they 5 said or wrote, and when it was said or written.” Id. 6 Here the claims fail on almost every element, but most notably in the failure to 7 allege reliance. Corday alleges that it was presented with accounting figures that 8 show budget overruns and with statements regarding efforts to market the series in 9 England and France. But Corday does not claim to have been deceived by these 10 statements or to have engaged in detrimental conduct based on them. On the contrary, 11 Corday alleges that it never believed them in the first place and contests their 12 accuracy. In other words, it never relied to its detriment on those statements because 13 it did not believe them to be true. And without reliance, there can be no causation and 14 damages. 15 With respect to concealment, Corday does not describe who specifically at CPT 16 concealed information from it, what specific information was concealed, how it relied 17 on the alleged concealment or how the concealment caused it damage. As to the 18 contention that there was an obligation to disclose due to the fiduciary relationship 19 between the parties, that issue has been resolved by the ruling on the breach of 20 fiduciary duty claim. 21 At the hearing, Corday’s counsel indicated that it could plead fraud with greater 22 particularity. While that seems unlikely, given the nature of the relationship between 23 the parties, the timing of the alleged misrepresentations, and the unlikelihood that 24 Corday can ever plead reliance, Corday will be given another chance to plead this 25 claim. The demurrer is therefore SUSTAINED WITH LEAVE TO AMEND. 26 27 28 - 11 - ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 D. The Breach of Contract Cause of Action 2 1. The Parties’ Positions 3 Corday’s Fourth Cause of Action alleges that CPT is in breach of the contract 4 between the litigants consisting of two 1972 agreements together with subsequent 5 amendments. The alleged breach consists of: (1) ceasing to make any effort to market 6 and distribute the Series; (2) refusing to negotiation new more favorable terms (as 7 mandated by Paragraph 10 of the Agreement) now that the series consists of one hour 8 rather than 30 minute episodes; (3) forcing Corday to bear the costs of production 9 overages even where the overage is the result of conduct mandated by CPT; (4) 10 refusing to share marketing expenses for the Series, which Corday has been forced to 11 bear due to the breach; and (5) failing to account for and pay production and 12 distribution profits. (Compl., Paras. 129-32;178-80.) 13 Defendants demur to the breach of contract cause of action on the ground that 14 Corday has not identified a specific contract provision that has been breached. 15 Defendants contend that: (1) there is no implied term regarding the degree of effort to 16 be employed in the marketing and distribution of the Series, and therefore Corday has 17 no right to “object” to CPT’s level of effort; (2) Paragraph 10 applies to new series, 18 not Days of our Lives, which, in any event, has consisted of one hour episodes for four 19 decades; (3) production overages are the obligation of Corday under the terms of the 20 agreement without exception, which Corday accepted in the 2009 Amendment in 21 exchange for receiving 100% of all performance bonuses; and (4) there is no 22 contractual term that obligates CPT to bear marketing expenses and that Corday has 23 chosen to pay all marketing expenses in recent years. The demurrer does not speak to 24 the allegation that CPT has not properly accounted for and paid production and 25 distribution profits. 26 27 28 - 12 - ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 2. Discussion 2 The foregoing indicates that the breach of contract claim involves several 3 specific grounds on which breach is alleged, some of which are viable and some 4 of which are not. 5 a. Paragraph 10 6 First, with respect to Paragraph 10 of the Agreement, there is no basis for 7 arguing that CPT is in breach for not negotiating new terms based on the shift to 8 60-minute episodes. The paragraph expressly refers to possible series other 9 than Days of our Lives. The term has nothing to do with the number of episodes 10 produced in a week, but rather the number that are telecast in a week. Finally, 11 the Series was expanded to 60 minutes per episode four decades ago, so any 12 claim that a breach occurred when that change was made has long since been 13 waived. The alleged breach of Paragraph 10 is therefore not a viable breach of 14 contract theory 15 b. The 2009 Amendment re Production Overages 16 Second, with respect to the issue of production overages, the parties 17 expressly agreed in the 2009 amendment that Corday would receive all 18 performance bonuses and that it would, in turn, agree to pay for all production 19 overages. The contract contains no “reasonableness” limitation, or any other 20 limitation, on Corday’s obligation to pay production overages. Accordingly, there 21 is no basis for alleging breach of the term of the 2009 amendment based on 22 anything CPT has allegedly done to cause Corday to incur production costs. 23 c. The Obligation to Market and Distribute 24 Third, the parties vigorously dispute whether the distribution obligation 25 contains a “commercial reasonableness” or a “best efforts” component. Corday 26 insists that it does, at least in what it describes as “reasonably available markets.” 27 (Oppos., at 11.) CPT contends that such a term would be implied only if Corday 28 otherwise received no consideration under the terms of the Agreement. (Reply, - 13 - ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 at 7-8.) In support of this argument, CPT relies heavily on Third Story Music, Inc. 2 v. Waits, 41 Cal.App.4th 798 (1995) and Avidity Partners, LLC v. State of California, 3 221 Cal.App.4th 1180 (2013). 4 Third Story involved a contract between a company that owned the rights 5 to Tom Waits “musical output” between 1972 and 1983 and the company that 6 purchased those rights under an agreement that gave the buyer the express right 7 to market or refrain from marketing the purchased materials. The seller sued 8 under the covenant of good faith and fair dealing when the buyer determined not 9 to market the Waits materials. The appellate court noted that the contract 10 conferred complete discretion on the buyer, and stated the issue as “when should 11 the implied covenant of good faith and fair dealing be applied to limit its 12 discretion?” Id., at 802. Citing to Supreme Court precedent, e.g., Carma 13 Developers, Inc. v. Marathon Development California, Inc., 2 Cal.4th 342 (1992), the 14 appellate court observed that the case contained an inconsistency by requiring 15 that discretion be exercised in good faith while at the same time indicating that 16 the covenant of good faith and fair dealing cannot be applied to vary the express 17 terms of an agreement. 41 Cal.App.4th, at 803. In reconciling the tension, the 18 court observed that where there is complete discretion on the part of one party, 19 the implied covenant of good faith and fair dealing need not be implied to modify 20 the exercise of discretion if the contract is otherwise supported by adequate 21 consideration. In Third Story, the court therefore concluded that, because the 22 buyer of the rights paid an annual advance on royalties, there was no need to 23 imply an obligation of good faith to create mutuality. The court concluded: 24 The conclusion to be drawn is that courts are not at liberty to imply a covenant directly at odds with a 25 contract’s express grant of discretionary power except in those relatively rare instances when reading the 26 provision literally would, contrary to the parties’ clear intention, result in an unenforceable, illusory 27 agreement. 28 - 14 - ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 Id., at 808. Accordingly, the appellate court affirmed the trial court’s decision 2 sustaining the buyer-defendant’s demurrer. 3 Avidity Partners reached a similar conclusion. In that case, which involved 4 a complex agreement between a timber company, the State of California and the 5 federal government, the timber company agreed to sell 7,000 acres of old growth 6 redwood forest in exchange for other forest lands and $495 million. Avidity 7 claimed that the agreement included a promise that the timber company would 8 be permitted to harvest the trees on the acquired forest lands at a specified 9 average rate per year. When the state eventually refused to grant permits to 10 allow the timber company to harvest its trees, it sued. The lawsuit raised several 11 complex issues regarding the state’s ability to contractually limit the exercise of 12 its police powers, but the appellate court determined that those issues need not 13 be reached because there was no promise to permit harvesting at a specified rate 14 per year. Moreover, there could be no breach of the covenant of good faith and 15 fair dealing regarding the state’s alleged implied obligation to approve harvesting 16 because the contract was otherwise supported by adequate consideration in the 17 form of a substantial monetary payment. Id., at 1207. 18 These cases are not controlling because this is not a case where the 19 promisor has been given absolute discretion to distribute, or not distribute, the 20 Series. CPT cites no term giving it discretion to market or refrain from doing so. 21 Its contention that Corday’s construction of the Agreement “ is absurd” and that 22 the Agreement is not reasonably susceptible to the interpretation alleged in the 23 Complaint is not persuasive, at least as a pleading matter. From the perspective 24 of a neutral, the Agreement appears to contemplate that CPT would be obliged to 25 make some effort to market and distribute the Series (and was incentivized to do 26 so), and the conduct of the parties over five decades supports that interpretation. 27 Thus, this is not a case where a party seeks, through application of the covenant 28 of good faith and fair dealing to place a limit on the exercise of an express - 15 - ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 discretionary term to which the parties have agreed. Rather, it is a case where a 2 party who has been the beneficiary of the performance of an obligation implicit 3 in a non-discretionary contract term alleges that performance of that obligation 4 has ceased. The key term being “alleges” because this ruling does not purport to 5 definitively interpret the agreement at this stage of the proceedings, but only to 6 say that the pleading has alleged a reasonable interpretation of the Agreement. 7 Corday will still be obliged to prove that its interpretation is correct, and that, so 8 construed, CPT in fact breached the Agreement. 9 d. Shared Marketing Costs 10 CPT contends that Corday concedes that it was obligated to bear the costs of 11 marketing the Series, which is inconsistent with its general allegation that the parties 12 agreed to an equal split of those costs. This is not a fair reading of the Complaint. 13 (See Compl., Paras. 117 et seq.) The Complaint contends that the Agreement, as 14 reflected in the parties’ course of conduct over more than five decades, included an 15 understanding that the parties would share marketing costs on a 50-50 basis. It 16 concedes that the costs of producing the show were re-allocated to Corday in the 2009 17 amendment but alleges that the parties never altered their cost sharing arrangement 18 with respect to the marketing of the Series. (Id., Para. 118.) As to Corday’s 19 payments, it acknowledges payment of 100% of “recent marketing and promotional 20 expenses”, but that it was required to do so because “Sony . . . has abdicated that 21 responsibility to Corday” and has refused to reimburse for those expenses. (Para. 22 128.) 23 Whether Corday can prove these allegations cannot be resolved at this stage of 24 the proceedings. If the allegations are as wide of the mark as Defendants contend, it 25 should be simple enough to defeat. But at this point the allegations are adequate to 26 defeat Defendants’ demurrer. 27 28 - 16 - ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 e. Conclusion 2 For the foregoing reasons, the breach of contract claim may proceed on the 3 grounds that CPT breached its obligation to market and distribute the Series and 4 to share marketing costs. As to those aspects of the Complaint, the demurrer is 5 OVERRULED. As to the alleged breach of Paragraph 10 and the 2009 6 amendment, the demurrer is SUSTAINED WITHOUT LEAVE TO AMEND. 7 E. Breach of the Covenant of Good Faith and Fair Dealing 8 Corday contends that CPT’s conduct breached the covenant of good faith 9 and fair dealing implied in every contract. Defendants argue that the claim is 10 redundant because it amounts to nothing more than a claim that CPT breached 11 the same contract terms identified in the breach of contract claim and is 12 therefore superfluous. In support, CPT cites Avidity and Third Story Music. To be 13 sure, the Avidity court held that a claim based on the same allegations as a breach 14 of contract claim is “superfluous since it relies on the same alleged acts and seeks 15 the same relief . . . .” 221 Cal.App.4th, at 1203. See also Bionghi v. Metropolitan 16 Water Dist., 70 Cal.App.4th 1358, 1370 ( 1999). Likewise, Third Floor Music and 17 Avidity, discussed above, make it clear that the covenant of good faith and fair 18 dealing cannot add a contractual term or contradict an express contractual 19 provision unless necessary to provide consideration by curbing the exercise of 20 discretion under certain limited circumstances. 21 However, the implied covenant does not exist merely to curb a promisor’s 22 exercise of discretion. As the Supreme Court observed in Guz v. Bechtel, 24 23 Cal.4th 317, 349 (2000): 24 The covenant of good faith and fair dealing, implied by law in every contract, exists merely to prevent one 25 contracting party from unfairly frustrating the other party's right to receive the benefits of the agreement 26 actually made. 27 Thus, while it adds no substantive term to a contract, Love v. Fire Ins. Exchange, 28 221 Cal.App.3d 1136, 1153 (1990) and does not create duties beyond the scope - 17 - ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 of terms of the agreement, Guz, at 349, it does protect the reasonable 2 expectations of the contracting parties and provides a remedy where a promisor 3 undertakes action to frustrate the objectives of the parties’ agreement. See also 4 Pashman v. Aetna Ins. Co., 2014 WL 3571689, at *13 (N.D.Cal., July 16, 2014) 5 (citing Guz for the proposition that implied covenant exists to prevent a party 6 from acting “in bad faith to frustrate the contract’s benefits”). Likewise, the 7 court in Careau & Co. v. Security Pacific Business Credit, Inc., 222 Cal.App.3d 1371, 8 1395 (1990) observed that the covenant of good faith and fair dealing involves a 9 duty beyond those found in the express terms of the agreement. 10 [A]llegations which assert such a claim must show that the conduct of the defendant, whether or not it 11 also constitutes a breach of a consensual contract term, demonstrates a failure or refusal to discharge 12 contractual responsibilities, prompted not by an honest mistake, bad judgment or negligence but 13 rather by a conscious and deliberate act, which unfairly frustrates the agreed common purposes and 14 disappoints the reasonable expectations of the other party thereby depriving that party of the benefits of 15 the agreement. 16 Id., at 1395. Conduct that meets this standard is to be determined on a “case by 17 case basis.” Id. 18 Corday contends that Defendants have unfairly and in bad faith interfered 19 with Corday’s right to receive the benefits to which it is entitled under the terms 20 of the Agreement, including those rights described in the breach of contract 21 claim. Corday alleges a number of ways in which CPT has allegedly frustrated 22 Corday’s reasonable expectations of performance. For example, Corday alleges 23 that CPT refused to fund production of the 2019-20 season and relented only 24 when NBC intervened. (Compl., Para. 20; see also Oppos., at 12-13.) These 25 allegations are not merely a regurgitation of the breach of contract claim and 26 therefore are not superfluous. Whether the allegations will be supported by 27 evidence, and even if they are, whether Corday can succeed in showing that the 28 conduct in fact was taken in bad faith to frustrate Corday’s rights under the - 18 - ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 Agreement remains to be seen. But for present purposes, the Complaint contains 2 sufficient facts to allow the breach of covenant claim to go forward. 3 E. The Accounting and Declaratory Relief Claims 4 The accounting claim would ordinarily be appropriate in connection with a 5 breach of fiduciary duty claim or in circumstances where an action for damages 6 is inadequate to determine an amount due and owing. Jolley v. Chase Home 7 Finance, LLC, 213 Cal.App.4th 872, 910 (2013); Teselle v. McLaughlin, 173 8 Cal.App.4th 156, 179-80 (2009). Here the parties are engaged in a long-standing, 9 complex relationship under which CPT periodically provides financial statements 10 to Corday regarding the profit status of the Series under the terms of the parties’ 11 agreements. Those statements are in dispute, and an accounting may be 12 required to sort out and resolve that dispute. It is not possible to say at this stage 13 that this is a case where an accounting cannot or should not be ordered. 14 Likewise, Defendants argument on the declaratory relief claim is simply to 15 assert that there has been no breach and therefore there is no ground for this 16 claim. But, as discussed above, it is not possible to say at this stage of the 17 proceedings that the contract has not been breached. Accordingly, the 18 declaratory relief remedy may be pursued. 19 Accordingly, the demurrer to the accounting and declaratory relief claims 20 is OVERRULED. 21 F. The UCL Claim 22 The UCL prohibits three kinds of unfair competition: practices that are 23 unlawful, unfair, or fraudulent. Graham v. Bank of America, 226 Cal.App.4th 594, 24 610 (2014). 25 The unlawful prong requires allegations that the conduct violated some 26 specific statutory scheme. The Graham court wrote: 27 By proscribing ‘any unlawful’ business act or practice [citation], the UCL ‘ “borrows” ’ rules set out in other 28 laws and makes violations of those rules - 19 - ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 independently actionable.” [Citation.] A “violation of 1 another law is a predicate for stating a cause of action under the UCL's unlawful prong.” 2 Here, Corday does not plead a violation of any specific statute as a predicate, nor 3 does it appear that it could plead, such a violation. Accordingly, this prong fails to 4 state a claim. 5 As to the unfairness prong, Corday asserts that some aspects of CPT’s 6 conduct violates “the policy or spirit of [antitrust laws] . . . . (Oppos., at 14.) That 7 allegation is based on CPT’s alleged refusal to use its best efforts to license and 8 distribute the Series, (Compl. Para. 197), favoring the Young and the Restless and 9 by “tying” or “bundling” the Series to others that it markets. (Id., at 15; see 10 Compl., at Paras. 12, 13, 198.) CPT argues, in essence, that Corday has done 11 nothing more than dressed its breach of contract claim in antitrust clothing in an 12 effort to bring itself within the scope of the UCL. 13 Both parties cite to Cel‐Tech Communications, Inc. v. Los Angeles Cellular 14 Telephone, Co., 20 Cal.4th 163 (1999) in support of their respective positions. 15 That decision tends to favor CPT’s argument. The court noted: 16 The United States Supreme Court has stressed that 17 the “ ‘antitrust laws ... were enacted for “the protection of competition, not competitors.” ’ ” 18 [Citation.] They “do not require the courts to protect small businesses from the loss of profits due to 19 continued competition, but only against the loss of profits from practices forbidden by the antitrust 20 laws.” [Citation.] Injury to a competitor is not equivalent to injury to competition; only the latter is 21 the proper focus of antitrust laws. 22 23 20 Cal.4 , at 186. (Emphasis added.) This concept is controlling here. th
24 This principle demonstrates that a UCL claim for “unfairness” has not been
25 stated. Corday’s complaint is entirely about its dissatisfaction over CPT’s
26 marketing efforts on its behalf. It complains that it has not gotten the return it 27 expected because CPT bundled, or tied, or otherwise was more motivated to sell 28 the Young and the Restless rather than Days of our Lives. Thus, the Complaint - 20 - ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 focuses on CPT’s alleged injury from CPT’s violation of its contract obligations 2 and not about an injury to competition. Without facts establishing a plausible 3 claim that an antitrust violation has occurred causing injury to competition, the 4 claim fails. 5 Finally, as to the “fraud” theory, Corday contends that it need not plead and 6 prove harm to the public to recover and that actual deceit or confusion need not 7 be shown. (Oppos., at 14, quoting from Buller v. Sutter Health, 160 Cal.App.4th 8 981, 986 (2008). Corday argues that CPT’s argument regarding Buller’s holding 9 is misleading, and that because its complaint includes a viable fraud claim, the 10 UCL claim states a cause of action. First, as noted above, the fraud and 11 concealment claims are seriously defective and fail to state proper claims for 12 relief. Moreover, Corday does not provide the entirety of the relevant language 13 from Buller where the court wrote: 14 It has been stated that “In order to state a cause of action under the fraud prong of the UCL a plaintiff 15 need not show that he or others were actually deceived or confused by the conduct or business 16 practice in question. ‘The “fraud” prong of [the UCL] is unlike common law fraud or deception. A violation 17 can be shown even if no one was actually deceived, relied upon the fraudulent practice, or sustained any 18 damage. Instead, it is only necessary to show that members of the public are likely to be deceived.’ 19 [Citations.]” 20 Id., at 986. (Emphasis added.) Watson Laboratories, Inc. v. Rhone‐Poulanc Rorer, 21 Inc., 178 F.Supp.2d 1099, 1121 (C.D. Cal. 2001) clearly explains that the “fraud” 22 prong of the UCL is not designed to remedy private disputes between private 23 businesses. Rather, the statutory purpose is to provide a remedy against 24 business practices that threaten to deceive the public whether or not actual 25 deceit has been shown. 26 Careful consideration of each of the foregoing aspects of the UCL suggests 27 that no amendment will cure the defects because the basic nature of the present 28 dispute and the fundamental relief sought is entirely personal to Corday and not - 21 - ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 1 to any public interest. Accordingly, the demurrer to the UCL claim is SUSTAINED 2 WITHOUT LEAVE TO AMEND. 3 III. CONCLUSION 4 For the foregoing reasons, the demurrers are sustained WITHOUT LEAVE 5 TO AMEND with respect to the First Cause of Action, aspects of the Fourth Cause 6 of Action, and the Eighth Cause of Action. The demurrers to the Second and 7 Third Causes of Action are sustained WITH LEAVE TO AMEND. The demurrers 8 to the Fourth Cause of Action is OVERRULED IN PART, and to the Fifth, Sixth and 9 Seventh Causes of Action are OVERRULED. 10 Corday will have until August 9, 2019 to file an amended complaint. If 11 Corday determines not to amend, it is ordered to give prompt notice to the 12 Referee so that the Referee and counsel can conduct a scheduling conference in 13 this matter. 14 15 IT IS SO ORDERED.
16 DATED: July 17, 2019 /s/ Gary A. Feess
Gary A. Feess 17 United States District Judge (Ret.) 18 Phillips ADR Enterprises 19 20 21 22 23 24 25 26 27 28 - 22 - ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632 PROOF OF SERVICE 1 I am employed in the County of Orange, State of California. I am over the age 2 of 18 and not a party to the within action. My business address is 2101 East Coast Highway, Suite 250, Corona del Mar, California 92625. 3 On July 17, 2019, I served the foregoing document described as Order of 4 Judicial Reference re Defendants’ Demurrer on each interested party, as follows: 5 Pierce O’Donnell podonnell@ggfirm.com 6 Daniel G. Stone dstone@ggfirm.com 7 Joshua M. Geller jgeller@ggfirm.com 8 Greenberg Glusker Fields Claman & Machtinger LLP 1900 Avenue of the Stars, 21st Flr 9 Los Angeles, CA 90067 Attorney for Plaintiff RTE 60, LLC 10 Scott A. Edelman 11 sedelman@gibsondunn.com Blain H. Evanson 12 bevanson@gibsondunn.com Daniel Nowicki 13 dnowicki@gibsondunn.com Matthew C. Reagan 14 mreagan@gibsondunn.com Gibson Dunn & Crutcher 15 2029 Century Park East, Suite 4000 Los Angeles, CA 90067 16 Attorney for Defendants SONY PICTURES TELEVISION INC., CPT HOLDINGS, INC., COLUMBIA PICTURES 17 INDUSTRIES, INC., SCREEN GEMS, INC. 18 19 X (BY ELECTRONIC SERVICE) I caused such document(s) to be electronically served on the party identified and no error was received 20 when transmitted. My electronic business address is [EMAIL ADDRESS]. 21 Executed on July 17, 2019, at Corona del Mar, California. 22 I declare under penalty of perjury under the laws of the State of California that 23 the foregoing is true and correct. 24 /s/ Meghan Lettington 25 Meghan Lettington (Type or print name) (Signature) 26 27 28 - 23 - ORDER RE DEFENDANTS’ DEMURRER Case No. 19STCV04632