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This isn’t the best week for Disney in court. Not only does the studio have to deal with a copyright suit over its hit animated film Zootopia, but Disney is again facing claims over Home Improvement syndication money after a California appeals court revived a lawsuit on Wednesday.
In 2013, Wind Dancer Production Group and writer-producers Matt Williams, Carmen Finestra, Tam O’Shanter and David McFadzean filed a lawsuit claiming that they haven’t been paid their fair share of profits —75 percent of net — from a show that has generated $1.5 billion for Disney.
The lawsuit was subsequently dismissed by a judge thanks to an “incontestability” clause in the contract that required an objection to profit participation statements within 24 months after the date sent and legal action initiated within 24 months after the date sent. A Los Angeles Superior Court judge granted Disney’s motion for summary adjudication on the ground that the producers’ claims were time-barred.
On Wednesday, the appeals court reverses.
Although appellate justice Laurie Zelon writes in the opinion (here) that parties to a contract may agree to a shortening of the statute of limitations, and that 24 months isn’t unreasonable or unconscionable, she finds that there are triable issues related to whether Disney waived the incontestability clause by orally agreeing to toll — or extend — the previously agreed-upon limitations period. This analysis differs from the trial judge who decided there needed to be an explicit written agreement in light of the profit deal between the parties that stated modifications needed to be in writing.
“The law is clear, however, that notwithstanding a provision in a written contract that expressly precludes oral modification, the parties may, by their words or conduct, waive the enforcement of a contract provision if the evidence shows that was their intent,” writes Zelon. “Accordingly, the no-oral-modification clause in the profit participation agreement did not preclude Disney from waiving other provisions in the agreement that were made for its benefit, including the time limitations in the incontestability clause. It also did not preclude Disney from orally agreeing to toll the limitations period for the Audit 4 and 5 statements that are the subject of this action while those audits were pending.”
Additionally, and with perhaps deeper implications for the controversies that often arise in Hollywood Accounting cases, the appellate court says there are also triable issues over whether Disney may be prevented from asserting the incontestability clause due to its conduct over the course of the parties’ relationship. The suing producers brought the argument that Disney could have asserted that audit claims were time-barred at a certain point, but that the company didn’t. Further, the producers presented evidence that Disney had a practice of delaying audits or only allowing one audit at a time such that they were unable to timely object.
“Yet the incontestability clause requires the producers to object ‘in specific detail’ to the participation statements within 24 months after the date sent,” writes Zenon. “In the absence of a timely and thorough audit, the producers could not submit detailed objections to the summary statements issued by Disney, and thus, could not satisfy the time limitations in the incontestability clause. The cumulative effect of Disney’s delays was that the producers were precluded from complying with their obligations under the parties’ agreement.”
The judge concludes, “Based on the totality of evidence presented about Disney’s alleged conduct, including the oral tolling agreements, the prior failure to enforce the incontestability clause, and the chronic delays in the audit process, we conclude that there are triable issues of material fact as to whether Disney may be estopped from asserting the contractual limitations period as a defense to the producers’ claims. The trial court accordingly erred in granting summary adjudication in favor of Disney.”
The plaintiffs are represented by an appellate team at Greines, Martin, Stein, & Richland as well as Roman M. Silberfield at Robins, Kaplan, Miller & Ciresi, while Disney’s defense is being handled by Daniel Petrocelli at O’Melveny & Myers.
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