Judge Margaret L. Oldendorf, Case 18BBCV00147 2023-05-16 Tentative Ruling

Judge: Margaret L. Oldendorf, Case: 18BBCV00147, Date: 2023-05-16 Tentative Ruling

This action concerns the relationships between the parties as to the rights to a certain film known as Timecop and its sequels. Intermedia Film Distribution, Ltd. (Intermedia) alleges in its operative Second Amended Complaint that NBC Universal Media, LLC (Universal) wrongly obtained certain rights that it had to the film. Those rights were purportedly sold by LEI Development Projects, Inc. and its principal Christopher Taylor to Universal. It is Intermedia’s contention in this litigation that the transfer was wrongful and done in violation of its contractual rights.

LEI and Taylor responded to the litigation by moving to compel arbitration; that motion was granted. Intermedia engaged in arbitration with LEI and Taylor, resulting in an award in its favor. It now pursues claims only against Universal.

Universal demurs to the SAC on a number of grounds. For the reasons that follow, the demurrer is sustained with leave to amend. Universal also seeks to strike punitive damages. That motion is taken off calendar.

This action concerns certain rights to a film Timecop. More particularly, it concerns the rights to develop and exploit sequels; and separately, the right to proceeds from such sequels. Largo Entertainment, Inc. (not a party to this action) originally owned both. It sold its assets in two key transactions, which are relevant here:

(1) On May 9, 2000, Largo sold to Universal[1] the right to “develop, produce, and exploit derivative works” based on Timecop. Largo carved out and retained an exclusive right to distribute in Japan (SAC, ¶12). This transaction is referred to as the “Universal Purchase Agreement.”

(2) On December 14, 2001, Largo sold to Intermedia “all right, title, and interest” in 25 films, including Timecop; this includes all accounts receivable and all assets and inventory in which Largo has any interest related to exploitation of an asset. Intermedia alleges that pursuant to this agreement it acquired Largo’s remaining rights to Timecop and any sequels (SAC, ¶¶11). This transaction is referred to as the “Intermedia Asset Purchase Agreement.”

In addition to these two agreements, it is alleged that in June 2002, Largo purported to sell to LEI Development Projects, Inc. and its principal Christopher Taylor all of its rights to distribute Timecop 2: the Berlin Decision in Japan. The SAC alleges that because Largo had already sold this right to Intermedia, this attempt to sell the asset a second time was invalid. SAC, ¶17. Intermedia alleges this transaction was intentionally conducted in secret, without notice to Intermedia and without recording the transaction in the U.S. Copyright Office; thus depriving Intermedia of knowledge that this asset had purportedly been sold to LEI. SAC, ¶18.

It is alleged that the following month, in August 2002, LEI purported to sell to Universal the right to distribute Timecop 2 in Japan for $400,000. It is alleged that Universal should have known that LEI did not own the rights it was purporting to sell since Universal was in possession of the Intermedia Asset Purchase Agreement. It is alleged that Universal should have negotiated with Intermedia for the purchase of this asset; and that if it had, Intermedia would potentially have received more than $400,000 for the Japanese Distribution Rights. SAC, ¶¶ 21-24.

The SAC alleges that Universal released Timecop 2 in the United States in about September 2003. SAC, ¶15. (There is no allegation about if or when it released the film elsewhere.)

Intermedia alleges that in 2014 it was considering selling its subsequent distribution rights to Timecop, and reached out to Universal about it via email. It further alleges that Universal did not answer the email for three years. Thus, it was not until 2017 that Intermedia first learned of the allegedly secret sale to LEI, and subsequent sale to Universal. This lawsuit was filed within the year. SAC, ¶¶25-27.

The SAC includes information about the arbitration, including the fact that Intermedia prevailed in its claims against LEI. SAC, ¶¶ 28, 29. Certain findings of the Arbitrator are referenced in the SAC:

- the transfer of rights in the 2002 Largo-LEI agreement (by which LEI purported to acquire rights to distribute in Japan) was not valid;

-Intermedia is deemed to be the rightful successor in interest to Largo, and the assignee of Largo with respect to the Universal Purchase Agreement. SAC, ¶28.

Based on these factual allegations, Intermedia asserts the following causes of action against Universal: (1) Breach of Contract; (2) Breach of the Implied Covenant of Good Faith and Fair Dealing; (3) Intentional Interference with Prospective Economic Advantage; (4) Restitution/Unjust Enrichment. Universal demurs to all four causes of action.

Code Civ. Proc. §430.10(e) permits a demurrer on the basis that a complaint fails to state a cause of action. A demurrer admits, provisionally for purposes of testing the pleading, all material facts properly pleaded. Tindell v. Murphy (2018) 22 Cal.App.5th 1239, 1247. A demurrer tests the legal sufficiency of a complaint. Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4^th 968, 994.

Universal requests that the Court take judicial notice of a number of documents. Exhibits 1-4 are documents in this court file: (1) December 23, 2022 Order re Judgment against LEI and Taylor; (2) December 23, 2022 judgment; (3) September 8, 2020 order compelling arbitration; (4.a) Universal’s Response to Intermedia’s petition to confirm arbitration award; (4.b.) Universal’s notice of errata re Response. As to each of these judicial notice is granted pursuant to Evid. Code §452(c).

As to Exhibit 5, Universal requests that the Court take judicial notice of information available at https://www.imdb.com/title/tt0318763/releaseinfo/. Universal requests judicial notice of the fact that Timecop2 was released in Japan on February 26, 2004, based on information contained on the IMDB website. This request is denied. Courts may not take judicial notice of the contents of a website. LG Chem, Ltd. v. Superior Court (2022) 80 Cal.App.5th 348, 362, fn. 7.

Evid. Code §452(h) permits courts to take judicial notice of facts and propositions that are not reasonably subject to dispute, and that are capable of immediate and accurate determination by resort to resources of reasonably indisputable accuracy. IMDB is not such a resource. Further, while it is possible that the date of release is not going to be disputed, it is not the sort of fact that is normally considered “not reasonably subject to dispute” in the judicial notice context. For example, it is different than the question what day of the week a particular date fell on in a particular year.

Exhibit 6 is a certificate of registration from the U.S. Copyright office showing that Timecop 2 was released in the United States September 30, 2003. Judicial notice is granted pursuant to Evid. Code §452(c).

Exhibit 7 is a March 5, 2021 minute order in Los Angeles Superior Court case 20STCV11096, Mosher v. Warner Bros. Pictures. That request is granted pursuant to Evid. Code §452(d).

“[T]he elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) the resulting damages to the plaintiff.” Oasis Water Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 821.

The SAC alleges that Universal entered into the Universal Purchase Agreement with Largo in May 2000, pursuant to which Largo assigned to Universal the rights to exploit Timecop 2 and subsequent productions, in exchange for Universal’s obligation to account for and pay contingent compensation to Largo (with the exception that Largo retained the right to distribute in Japan). Intermedia alleges that the Universal Purchase Agreement provides at ¶25 that the agreement “shall bind and inure to the benefit of Universal and Largo and their respective heirs, legal representatives, successors, and assigns.” SAC, ¶¶ 14, 32. Intermedia alleges it purchased the right to distribute Timecop 2 in Japan. And, it alleges that Universal received notice of the Asset Purchase Agreement pursuant to which Intermedia possessed the exclusive right to distribute Timecop 2 and any subsequent productions in Japan.

Intermedia alleges at ¶35 that Universal breached the Universal Purchase Agreement by wrongfully acquiring the right to distribute Timecop 2 in Japan without having obtained the proper rights and authority from Intermedia. However, unless there is a contract term that prohibits Universal from acquiring the right to distribute in Japan, this does not appear to support a claim for breach of contract. Intermedia is not alleging (as it previously did) that Universal breached the Universal Purchase Agreement by failing to pay Intermedia (as Largo’s successor in interest or assignee) compensation by distributing in Japan.

By contrast, in the First Amended Complaint, Intermedia alleged the following breach:

“Universal has inexcusably and intentionally failed to perform and has openly and

materially breached its clear and admitted payment obligations by refusing to pay Intermedia any “Contingent Compensation” under the Universal Purchase Agreement, refusing any accounting of payments made and/or owing under the Universal Purchase Agreement, refusing to acknowledge Intermedia’s rights in and to the Japan Territory, and distributing Timecop 2: The Berlin Decision in the Japan Territory without having obtained the proper rights and authority from Intermedia.” FAC, ¶43.

The prior iteration of the breach of contract claim sufficiently alleged the purported breach; the current version in the SAC does not. Stated differently, to the extent Universal obtained the rights to distribute in Japan, that conduct may have been wrongful and may even be actionable, but the complaint does not identify any contract term that it breached. This is a defect that may be corrected by further amendment; leave to amend is proper.

Outside of the insurance context, and in the absence of a violation of an independent duty that arises from principles of tort law, breaches of contract, even intentional or wrongful breaches, do not give rise to tort damages. Freeman & Mills, Inc. v. Belcher Oil Co. (1995) 11 Cal.4th 85, 102.

Intermedia alleges that Universal violated the covenant of good faith and fair dealing by distributing Timecop 2 in Japan without having obtained the proper rights and authorization from it, thus violating the Universal Purchase Agreement. SAC, ¶¶ 38, 39. The only duties implicated on these allegations are contractual. No cause of action for breach of the covenant is stated. While it does not appear that this defect can be cured by amendment, if Intermedia requests, the Court will consider granting leave to amend this cause of action.

“For intentional interference, the plaintiff must plead and prove: (1) an economic relationship between the plaintiff and some third party, with the probability of future economic benefit to the plaintiff; (2) the defendant's knowledge of the relationship; (3) intentional acts on the part of the defendant designed to disrupt the relationship. (Citation.) With respect to the type of intentional disruptive acts that are actionable, they must be wrongful by some independent legal measure, beyond interference. (Ibid.)” Golden Eagle Land Investment, L.P. v. Rancho Santa Fe Assn. (2018) 19 Cal.App.5th 399, internal quotation marks omitted.

Universal challenges Intermedia’s allegation as to the existence of an “economic relationship” with a third party. Universal relies on Roy Allen Slurry Seal, Inc. v. American Asphalt South, Inc. (2017) 2 Cal.5th 505. In that case, the California Supreme Court held that a losing bidder on a public works contract had no claim against the winning bidder because it did not have an existing relationship with the public entity. Intermedia urges that this case is distinguishable because there were no other “bidders.” Rather, it had the exclusive right to distribute in Japan. But the point is still well taken that the SAC does not allege an existing relationship with a third party. Intermedia alleges in ¶43 that, given its exclusive Japanese distribution rights, it has a prospective economic relationship with third parties in Japan. As currently pleaded, it appears that what Intermedia had was the right to develop exclusive distribution rights with third parties in Japan, but not that it actually had such relationships. If Intermedia did have economic relationships with third parties in Japan, it should identify them. This is a defect that may be cured by amendment and thus leave to amend on this element is granted.

Whether the wrongful conduct is independently actionable is a closer call. Universal urges that the conduct is contractual in nature, while Intermedia counters that there can be no lawful purpose for the “sham” transaction by which it acquired Intermedia’s rights. For purposes of demurrer the allegation that Universal had at least constructive notice of Intermedia’s rights when it negotiated with LEI for the Japanese distribution rights is sufficient.

Universal is correct that this is a remedy, not a cause of action. Melchior v. New Line Productions, Inc. (2003) 106 Cal.App.4th 779, 793.

In alleging that Universal is being unjustly enriched by receiving revenues from the exploitation of Timecop 2 in Japan when those exclusive rights belong to Intermedia, Intermedia disregards the fact that the Arbitration Award essentially affirmed the transfer of those rights to Universal. The Award concludes that LEI was required to reimburse Intermedia the $400,000 it received for the sale of those rights. As Universal notes, it would not be equitable for Intermedia to both be paid for the sale of its rights through the Award; and also maintain the rights to payment from Universal.

The demurrer to this cause of action is therefore sustained without leave to amend.

Universal urges that the breach of contract cause of action is time-barred because Timecop 2 was released in Japan in 2004. The request for judicial notice of the Japan release date has been denied; but the real issue here appears to be delayed discovery.

Delayed discovery must be pleaded and proved. Delayed discovery allegations should include facts showing the time and manner of discovery, and the party’s inability to have made the discovery earlier despite reasonable diligence. Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 808.

Intermedia’s attempt at alleging delayed discovery appears in ¶25 of the SAC. Intermedia alleges that it did not discover Universal’s wrongful acquisition of the Japan sequel rights until 2017. The facts supporting this claim are that in 2014, Intermedia considered selling the subsequent distribution rights to Timecop and emailed Universal about it, but did not hear back for three years. It alleges that in July 2017, Universal first supplied it with a copy of the LEI Agreement. The initial complaint was filed within a year after that.

While these allegations are sufficient to show the time and manner of discovery, they are insufficient to show an inability to have made the discovery earlier despite the exercise of reasonable diligence. The SAC is on its face time-barred and delayed discovery is not adequately alleged. This is a defect that may be corrected by amendment; leave to amend is proper.

Universal urges against amendment, arguing the claims are clearly time-barred. But this is an issue not well suited for resolution at the demurrer stage. In the main case Universal relies on, NBCUniversal Media, LLC v. Superior Court (2014) 225 Cal.App.4th 1222, the issue was decided on summary judgment. The same is true of most of the other cases it cites. Stella v. Asset Management Consultants, Inc. (2017) 8 Cal.App.5th 181 is different; there, because documents attached to the pleading contained warning language sufficient to put the plaintiff on inquiry (if not actual) notice, the delayed discovery rule did not apply. Id. at 197. Similarly, in Britton v. Girardi (2015) 235 Cal.App.4th 721, the pleading contained facts showing the plaintiffs were on inquiry notice. Id. at 735.

Intermedia cites April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805. That opinion contains a lengthy discussion of the delayed discovery rule and the circumstances where it applies. As to claims for breach of contract the court held: “the discovery rule may be applied to breaches which can be, and are, committed in secret and, moreover, where the harm flowing from those breaches will not be reasonably discoverable by plaintiffs until a future time.” Id. at 832. Applying that rule here, if there were a contract term that prohibited Universal from acquiring distribution rights to Timecop 2, the discovery rule would seem to apply to that contract claim where: (1) Universal acquired those rights in secret; and (2) the harm flowing from the breach would not reasonably be discoverable until some future time. Unlike the erasing of videotapes that occurred in April Enterprises, the release of a film in Japan is not necessarily something that would be undiscoverable until later. As indicated above, any future amendment should address Intermedia’s inability to discover the wrongdoing earlier.

In opposing this portion of the demurrer, Intermedia argues that its claims are not based on the film’s release in Japan, but rather Universal’s wrongful scheme to purportedly acquire its exclusive rights in a secret transaction. Opposition at 11:17-19. To reiterate the analysis in Section C.1 above, the act of wrongfully acquiring rights is not a contract claim. If this scheme violates a particular contract term, Intermedia should amend to so allege.

Finally, in opposing the argument that the claims are time-barred, Intermedia argues that this issue was resolved by the Arbitrator and cannot be relitigated. It urges that the Arbitrator’s determination about when Intermedia discovered the wrongful conduct by which LEI sold the Japan distribution rights to Universal (July 14, 2017) has been determined, and res judicata bars further litigation of this issue. But, as discussed in Section E below, because Universal was not a party to the arbitration it is not bound by the arbitration Award and resulting judgment.

Universal argues that Intermedia’s primary right (to the Japan distribution rights) was determined in the Arbitration and cannot be relitigated. Universal properly frames its res judicata argument in terms of “primary rights,” arguing that what Intermedia sought was an adjudication concerning ownership to the Japanese Distribution Rights to Timecop 2. But because Universal was not a party to the Arbitration, the argument is more appropriately framed in terms of collateral estoppel or issue preclusion.

The terms res judicata and collateral estoppel have been the source of much confusion. This is how the California Supreme Court clarified the concepts in DKN Holdings LLC v. Faerber (2015) 61 Cal.4th 813:

“[O]ur terminology in discussing the preclusive effect of judgments has been inconsistent and may have caused some confusion. We have frequently used ‘res judicata’ as an umbrella term encompassing both claim preclusion and issue preclusion, which we described as two separate ‘aspects’ of an overarching doctrine.

“Claim preclusion ‘prevents relitigation of the same cause of action in a second suit between the same parties or parties in privity with them.’ (Citation.) Claim preclusion arises if a second suit involves: (1) the same cause of action (2) between the same parties (3) after a final judgment on the merits in the first suit. (Citations.) If claim preclusion is established, it operates to bar relitigation of the claim altogether.

“Issue preclusion prohibits the relitigation of issues argued and decided in a previous case, even if the second suit raises different causes of action. (Citation.) Under issue preclusion, the prior judgment conclusively resolves an issue actually litigated and determined in the first action. (Citation.) There is a limit to the reach of issue preclusion, however. In accordance with due process, it can be asserted only against a party to the first lawsuit, or one in privity with a party. (Citation.)

“Issue preclusion differs from claim preclusion in two ways. First, issue preclusion does not bar entire causes of action. Instead, it prevents relitigation of previously decided issues. Second, unlike claim preclusion, issue preclusion can be raised by one who was not a party or privy in the first suit. (Citation.) ‘Only the party against whom the doctrine is invoked must be bound by the prior proceeding. [Citations.]’ (Ibid.) In summary, issue preclusion applies: (1) after final adjudication (2) of an identical issue (3) actually litigated and necessarily decided in the first suit and (4) asserted against one who was a party in the first suit or one in privity with that party. (Citations.)

“Unlike claim preclusion, issue preclusion can be invoked by one not a party to the first proceeding. The bar is asserted against a party who had a full and fair opportunity to litigate the issue in the first case but lost. (See Parklane Hosiery Co. v. Shore (1979) 439 U.S. 322, 327–329, 99 S.Ct. 645, 58 L.Ed.2d 552.) The point is that, once an issue has been finally decided against such a party, that party should not be allowed to relitigate the same issue in a new lawsuit. (Blonder–Tongue v. University Foundation (1971) 402 U.S. 313, 324–325, 91 S.Ct. 1434, 28 L.Ed.2d 788 (Blonder–Tongue); see Arias v. Superior Court, supra, 46 Cal.4th at p. 985, 95 Cal.Rptr.3d 588, 209 P.3d 923.) Issue preclusion operates ‘as a shield against one who was a party to the prior action to prevent’ that party from relitigating an issue already settled in the previous case. (Rice v. Crow, supra, 81 Cal.App.4th at p. 735, 97 Cal.Rptr.2d 110.)” Id. at 823-827 (citations omitted, bolding added).

Nonmutual collateral estoppel may be used offensively (as in Parklane Hosiery and DKN); and defensively (as in Blonder-Tongue). Universal seeks to use it defensively.

Universal argues, “it is clear the arbitrator (and thereafter, this Court) already adjudicated the same primary right now at issue in Intermedia’s claims against NBCU—namely, alleged damages to Intermedia from NBCU having distributed Timecop 2 in Japan based on an agreement with LEI. Intermedia makes clear throughout the SAC that this is the claimed harm at issue in this case (e.g., SAC ¶¶ 35, 39, 43-46, 49-50)—and Intermedia alleges it is concerned that, absent relief from this Court, NBCU will continue to “deprive Intermedia of its exclusive right to distribute Timecop 2 in Japan.” (SAC ¶¶ 24). This primary right was already litigated and adjudicated.” Memorandum of Points and Authorities at 18:13-19. Universal points out that the Arbitration Award, which has been confirmed as a judgment, determined that Intermedia does not have the exclusive right to distribute Timecop 2 in Japan, but rather Universal does. Arbitration Award at 33:9-12.

The Arbitration Award requires LEI/Taylor to turn over to Intermedia the $400,000 it received for those rights. Further, it adjudged that Intermedia “stepped into the shoes” of Largo under the Largo-LEI Agreement, such that Universal will be required to pay Intermedia for any future use pursuant to paragraphs 8.b, 8.c, and/or 8.d of the Universal Purchase Agreement; and that the Japanese Distribution Rights are vested in Intermedia. Arbitration Award at 34:6-35:14.

The Arbitration Award appears to address the relief sought in Intermedia’s FAC.

Intermedia points out that it previously pursued claims against LEI and Taylor but has not yet litigated against Universal. This misses the point of the issue preclusion argument.

Intermedia argues that Universal has mischaracterized the Award and that, when read in context, it actually says the opposite of what Universal contends. Intermedia points to language at pages 33 and 34 of the Award, where the arbitrator explained that while the LEI-Universal agreement purported to transfer the Japanese Distribution Rights to Universal there was no valid transfer, and the agreement had no legal force and effect. It is unclear how this establishes the opposite of what Universal is arguing. The arbitrator found the LEI-to-Universal agreement was void and in order to cure this injustice, the arbitrator fashioned an award that was equitable in nature. The award grants to Universal those rights that it would have had absent the wrongful conduct.

Intermedia argues that this equitable remedy (i.e., judgment) does not resolve its claims against Universal, because the Award does not address its claims that Universal is liable for: (1) knowingly acquiring Intermedia’s rights in an allegedly secret, sham transaction; (2) interfering with its economic relationships with third parties in Japan; and (3) had Universal negotiated with the proper party (Intermedia instead of LEI/Taylor), it would have obtained more than $400,000 for the rights. Opposition at 15:3-9.

To the extent these are new allegations (that is, matters not contained in the FAC), the question is whether the allegations could, and therefore should, have been included in the Arbitration proceeding. That question is reserved for future consideration, if necessary.

To the extent Intermedia can assert a claim based on Universal’s alleged wrongful conduct of knowingly negotiating with LEI for rights held by Intermedia, leave to amend is granted for Intermedia to allege such a claim. As to Intermedia’s allegation that it might have been able to negotiate for more than $400,000 (SAC, ¶23), Universal is correct that any damages under this theory are speculative. McDonald v. John P. Scripps Newspaper (1989) 210 Cal.App.3d 100.

As the demurrer is being sustained, there will be no operative pleading from which to strike any matter. The motion to strike is therefore taken off calendar as moot.

Universal’s demurrer to the breach of contract cause of action is sustained for the reasons set forth above. The SAC does not identify the contract term that Universal is alleged to have breached; and it insufficiently alleges delayed discovery.

The demurrer to the Second Cause of Action for breach of the implied covenant of good faith and fair dealing is sustained as this not an actionable tort absent allegation of some independent wrongful conduct. Freeman & Mills, Inc. v. Belcher Oil Co. (1995) 11 Cal.4th 85, 102; Allied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 515.

The demurrer to the claim for Intentional Interference With Prospective Economic Advantage cause of action is sustained for failure to allege existing third-party relationships that were interrupted.

The demurrer to the Restitution/Unjust Enrichment cause of action is sustained as this is not a cause of action but a remedy.

Universal’s argument that all causes of action are barred by the statute of limitations is sustained on the ground that delayed discovery is not sufficiently pleaded. Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 808.

As for the Universal’s argument that all causes of action are barred by res judicata, the Court interprets this to be an argument that the claims are barred by the doctrine of issue preclusion. The argument appears to be well taken. However, the question of exactly which issues existed at the time of the Arbitration and were therefore necessarily decided in that proceeding cannot be determined on this demurrer. The issue is reserved for further consideration if and when it is appropriate.

The motion to strike is taken off calendar as moot in light of the ruling on the demurrer.

[1] The contracting party is Universal Family & Home Entertainment Production, Inc.; the complaint alleges this is Universal’s predecessor in interest. SAC, ¶12.