Judge Margaret L. Oldendorf, Case Number: 18BBCV00147, Date: 2023-10-11 Tentative Ruling

Judge: Margaret L. Oldendorf, Case: 18BBCV00147, Date: 2023-10-11 Tentative Ruling

This action concerns the relationship between parties concerning the rights to a certain film known as Timecop and its sequels. Intermedia Film Distribution, Ltd. (Intermedia) alleges that NBC Universal Media, LLC (Universal) wrongly exercised certain rights Intermedia allegedly had to the film. The original owner of the rights, Largo Entertainment, Inc. (not a party to this action) sold the rights first to Intermedia, and then re-sold them to LEI Development Projects, Inc. and its principal, Christopher Taylor (LEI/Taylor). LEI/Taylor then sold the rights (which were allegedly not theirs to convey) to Universal.

LEI/Taylor successfully moved to compel arbitration. The arbitration resulted in an award in Intermedia’s favor. Following confirmation of the arbitration award as a judgment, Intermedia amended its complaint in this action to assert claims solely against Universal.

On May 16, 2023, this Court issued a lengthy ruling sustaining Universal’s demurrer to the Second Amended Complaint with leave to amend. Intermedia filed a Third Amended Complaint and then, pursuant to stipulation and order, it filed the operative Fourth Amended Complaint (4AC). The matter that is now before the Court is Universal’s demurrer to the 4AC.

Because the claims are time-barred, the demurrer is sustained without leave to amend.

This action concerns the rights to develop and exploit sequels to Timecop, as well as the right to proceeds from such sequels. Largo originally owned both. Largo sold its assets in two key transactions, which are relevant in this case:

(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. (4AC, ¶8 and Exhibit A.) This transaction is referred to as the “Universal Purchase Agreement” or the 2000 UPA.

(2) On December 14, 2001, Largo sold to Intermedia “all rights, title, and interest” in 25 films, including Timecop. This included all accounts receivable, and all assets and inventory in which Largo had any interest related to the exploitation of an asset. Intermedia alleges that, pursuant to this agreement, it acquired Largo’s remaining rights to Timecop and any sequels. (4AC, ¶12 and Exhibit B.) This transaction is referred to as the “Intermedia Asset Purchase Agreement” or the 2001 APA.

In addition to these two agreements, Intermedia alleges that in June 2002, Largo purported to sell to LEI/Taylor all of its rights to distribute Timecop 2: the Berlin Decision in Japan. (4AC, ¶18 and Exhibits C and D.) Intermedia alleges that LEI then purported to sell the Japanese distribution rights to Universal for $400,000. (4AC, ¶19 and Exhibit E.)

Intermedia alleges on information and belief that Universal should have known that LEI did not own the rights it was purporting to sell because: (a) Universal was in possession of the Intermedia Asset Purchase Agreement; and (b) Intermedia had recorded a broad Assignment of Copyright Interest with the United States Copyright Office on February 8, 2002. (4AC, ¶20.)

Intermedia alleges that Universal released Timecop 2 in the United States in about September 2003. (4AC, ¶25.) Intermedia alleges that “the exact day when Timecop 2 was released in Japan” remains unclear. (Id.)

A summary of the arbitration involving Taylor and LEI is set forth at ¶¶27-32.

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 Contract; and (4) Declaratory Relief. 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.4th 968, 994.) Allegations of a pleading are to be “liberally construed, with a view to substantial justice between the parties.” (Code Civ. Proc. §452.)

Universal requests judicial notice of several documents. In analyzing the Universal demurrer, the Court has taken into consideration only documents contained within the file in this case. Judicial notice is not needed for documents within the same case; but they would be judicially noticeable in any event pursuant to Evid. Code §452(d). Thus, the Court takes judicial notice of Exhibits A through H in Universal’s RJN.

“A complaint showing on its face the cause of action is barred by the statute of limitations is subject to general demurrer.” (Iverson, Yoakum, Papiano & Hatch v. Berwald (1999) 76 Cal.App.4th 990, 995; Vaca v. Wachovia Mortgage Corp. (2011) 198 Cal.App.4th 737, 746 (Vaca).)

Intermedia alleged in its First Amended Complaint at ¶33 that Universal released Timecop 2 in Japan in 2003. This judicial admission cannot be avoided by omitting it from later iterations of the pleading. (Lockton v. O’Rourke (2010) 184 Cal.App.4th 1051, 1061 [“admissions in an original complaint that has been superseded by an amended pleading remain within the court’s cognizance and the alteration of such statements by amendment designed to conceal fundamental vulnerabilities in a plaintiff’s case will not be accepted”].)

Claims of unauthorized use of a creative work accrue on the date a work is released to the public. (NBC Universal Media, LLC v. Superior Court (2014) 225 Cal.App.4th 1222, 1229, fn. 3; 1231.) Here, that date is 2003.

The statute of limitations for breach of contract and breach of the implied covenant of good faith and fair dealing is four years. (Code Civ. Proc. §337(a); Comunale v. Traders & Gen. Ins. Co. (1958) 50 Cal.2d 654, 662.) The statute of limitations for intentional interference with contractual relations is two years. (Code Civ. Proc. §339(1); Knoell v. Petrovich (1999) 76 Cal.App.4th 164, 168.) The statute of limitations for a declaratory relief cause of action depends on the right or obligation to be enforced; when the claim is based on a written instrument a four-year limit applies. (Ginsberg v. Gamson (2012) 205 Cal.App.4th 873, 883.)

As the release in Japan of Timecop 2 was a public (rather a concealed) event, the statute of limitations arguably commenced in 2003. It is unreasonable to assume that an entity in the film business such as Intermedia could be unaware of the film’s 2003 Japan release; indeed, Intermedia does not attempt to do so. Because this action was not filed until 2018, fifteen years after the release in Japan, Intermedia’s claims are time-barred.

Even if the statute of limitations did not begin to accrue until May 2014, when Intermedia began to inquire about its rights (and thus reflecting its suspicions with regard to assignment agreements that followed its purchase from Largo, see Exhibit G to 4AC), the claims are still time-barred. The original Complaint was not filed until November 2018, more than four years later.

As the Court noted in its ruling sustaining the previous demurrer with leave to amend, the public release of a film in Japan is not likely to be something that could be undiscoverable at the time. Nevertheless, the Court granted Intermedia leave to amend so that it may address the problem. In amending, Intermedia does not allege that it did not discover the Japanese release until 2017, or that it could not have discovered that fact earlier through the exercise of reasonable diligence. Instead, the 4AC focuses the allegations on Intermedia’s knowledge of Universal’s role in the release, rather than the timing of the release itself.

Intermedia’s delayed discovery allegations are primarily set forth at ¶¶23-25 of the 4AC. Intermedia alleges that on May 1, 2014, Intermedia (through Ray Reyes) emailed Universal (through David Berg) to inquire about selling its Timecop distribution rights. Intermedia alleges that Berg ignored this email for three years, and that it was not until July 2017 that Intermedia learned for the first time about the secret sale of its exclusive Japanese distribution license. (4AC, ¶24.)

“Until its discovery of the LEI Asset Purchase Agreement and Universal Japan Purchase Agreement on July 14, 2017, Intermedia was unaware that Universal had a role in distributing Timecop 2 in Japan and had no reasonable means to discover this information because Japanese film distribution information is not readily available through public sources [sic] information. Japan is a foreign territory where sources of film distribution information are both not in English and not readily available. Intermedia was and is a company with its principal place of business in Los Angeles, and no offices in Japan. As discussed above, the LEI Agreement and Universal Japan Purchase Agreement were not public documents and they were unknown to Intermedia until July 14, 2017. Indeed, to this day, the precise identity of the subdistributor in Japan who distributed Timecop 2 remains unclear as well as the exact day when Timecop 2 was released in Japan (Timecop 2 was released in the United States in or around September 2003). Only upon discovery of the LEI Asset Purchase Agreement and Universal Japan Purchase Agreement on July 14, 2017, did Intermedia learn for the first time that Universal had likely sublicensed the distribution rights to Timecop 2 in Japan to a subdistributor and distributed the movie in Japan through the subdistributor.”

Intermedia’s delayed discovery allegations fail, because they are focused on discovery of the source of distribution rather than the distribution itself. The distribution was the “injury-producing” event. In the current version of its Complaint, Intermedia alleges that Universal breached the UPA by authorizing a Japanese distributor to distribute Timecop 2 in violation of Intermedia’s exclusive rights. (4AC, ¶38.)

“ ‘The statute of limitations usually commences when a cause of action “‘accrues,’” and it is generally said that “‘an action accrues on the date of injury.’” [Citation.] Alternatively, it is often stated that the statute commences “‘upon the occurrence of the last element essential to the cause of action.’”’ [Citation.] ‘These general principles have been significantly modified by the common law “‘discovery rule,’” which provides that the accrual date may be “‘delayed until the plaintiff is aware of her injury and its negligent cause.’” ’ [Citation.] Now, under the discovery rule, ‘ “the statute of limitations begins to run when the plaintiff suspects or should suspect that her injury was caused by wrongdoing, that someone has done something wrong to her.”’ [Citation.]

“Yet ‘ignorance of the identity of the defendant is not essential to a claim and therefore will not toll the statute.’ [Citations.] ‘Aggrieved parties generally need not know the exact manner in which their injuries were “‘effected, nor the identities of all parties who may have played a role therein.”’ [Citation.]’” (Vaca, supra, 198 Cal.App.4th at 743-744.)

“Under the discovery rule, the statute of limitations begins to run when the plaintiff suspects or should suspect that her injury was caused by wrongdoing, that someone has done something wrong to her. [fn. 7] As we said in Sanchez and reiterated in Gutierrez, the limitations period begins once the plaintiff ‘ “has notice or information of circumstances to put a reasonable person on inquiry....” ’ (Gutierrez, supra, 39 Cal.3d at pp. 896–897, 218 Cal.Rptr. 313, 705 P.2d 886, quoting Sanchez, supra, 18 Cal.3d at p. 101, 132 Cal.Rptr. 657, 553 P.2d 1129 (emphasis added by the Gutierrez court).) A plaintiff need not be aware of the specific ‘facts’ necessary to establish the claim; that is a process contemplated by pretrial discovery. Once the plaintiff has a suspicion of wrongdoing, and therefore an incentive to sue, she must decide whether to file suit or sit on her rights. So long as a suspicion exists, it is clear that the plaintiff must go find the facts; she cannot wait for the facts to find her.” (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1110-1111.)

In opposing the demurrer, Intermedia focuses on its lack of knowledge that Universal had a role in the Japanese distribution of the film. (Opposition at 10:9-20 and 11:9-20.) “Intermedia’s claims are based on NBCU’s involvement in the wrongful scheme to distribute Timecop 2 in Japan, not merely the unauthorized distribution of Timecop 2 in Japan by some unknown subdistributor.” (Id. at 12:1-3, emphasis in original.) As discussed however, the proper focus is knowledge of the injury, not the identity of the particular individual or entity who had a role in causing it. The Japanese distribution put Intermedia on inquiry notice in 2003. Further, Intermedia has revealed that it was on inquiry notice as of May 2014 when Ray Reyes sent his email to David Berg. (See Exhibit G to the 4AC). Intermedia could not thereafter wait for other facts to “find” it before filing suit.

Therefore, Universal’s demurrer to all four causes of action of the Fourth Amended Complaint are sustained, without leave to amend.

The Court recognizes that this is a somewhat anomalous result, because the arbitrator reached a contrary conclusion with respect to the statute of limitations as it pertained to LEI/Taylor. But Universal is not bound by that decision, as it was not a party to the arbitration proceeding nor in privity with a party. (DKN Holdings LLC v. Faeber (2015) 61 Cal.4th 813, 825.)

Because the demurrer is sustained based upon expiration of the statute of limitations, Universal’s arguments regarding res judicata and judicial estoppel are not necessary to the Court’s ruling. They are mentioned only briefly here.

The gist of the 4AC is that LEI/Taylor sold Universal rights they did not possess. The Arbitrator found that Intermedia had substantiated this allegation. Arbitration Award at 20:23-26.[2] In issuing his award, the Arbitrator declared that he would exercise his equitable powers. Accordingly, he ruled as follows:

- The Japanese distribution rights are vested in Intermedia pursuant to the APA (33:2-8);

- The Japanese distribution rights are vested in Universal pursuant to the LEI-Universal 2002 Agreement (33:9-12);

- Neither LEI nor Taylor had the right to sell the Japanese distribution rights to Universal (33:13-16);

- The transfer of rights in the Largo-LEI 2002 Agreement and the LEI-Universal 2002 Agreement are deemed void and of no force or legal effect (33:17 – 34:3);

- To cure this injustice, LEI/Taylor is ordered to repay the $400,000 they received from Universal to Intermedia for the sale of the Japanese distribution rights within 30 days of issuance of the final award (34:6-12);

- In addition, and in order to cure the injustice and to implement an equitable solution, Intermedia is deemed to be the rightful successor-in-interest to Largo and assignee of Largo with respect to the contractual obligations and benefits of the UPA and steps into Largo’s shoes under that agreement (34:13-21);

- If Universal moves forward on a Timecop 3 (which it is free to do), Universal will be required to pay the “rights payment” and back-end payments to Intermedia (34:22-35:4);

-Now that Intermedia is the successor-in-interest and assignee of Largo with respect to the Largo-Universal 2000 Agreement, the Japanese distribution rights as to Timecop 3 and other subsequent productions are vested in Intermedia. If Universal wants to purchase such rights it must purchase them from Intermedia (35:5-14).

It is difficult to see how Intermedia has not already achieved through the Arbitration Award (now Judgment) substantially all the relief to which it is entitled. Through the equitable solution fashioned by the arbitrator, Intermedia is entitled to be paid for the Japanese distribution rights that were wrongly sold to Universal (pursuant to which Timecop 2 was released); and it retains the Japanese distribution rights as to any future productions. Intermedia argues that because the Award clarifies that it holds the exclusive Japanese license it is entitled to pursue claims against Universal for its breach. (Opposition at 15:6-7.) As to Timecop 2, however, the Arbitrator’s equitable solution provides for Intermedia to be paid the $400,000 that Universal paid to LEI/Taylor. Intermedia is not estopped to sue for future breaches, but those are not at issue in the current litigation.

Universal’s demurrer to the Fourth Amended Complaint is sustained without leave to amend for the reasons stated in the moving and reply papers and as discussed above. The claims are all barred by their applicable statutes of limitation. This is not a defect that can be cured by further amendment.

Universal is ordered to prepare and lodge a proposed judgment of dismissal within 10 days. Universal is also ordered to give notice of this ruling.

[1] The party to this agreement was Universal Family & Home Entertainment Production, Inc.; the complaint alleges this is Universal’s predecessor in interest. 4AC, ¶8.

[2] A copy of the Arbitration Award is attached to the Judgment in this action, filed December 23, 2022.