4:36pm PT by Eriq Gardner
Judge Allows 'Spinal Tap' Creators to Move Forward on Fraud Claim
This Is Spinal Tap co-creators Harry Shearer, Rob Reiner, Michael McKean and Christopher Guest on Tuesday scored a big decision from a California federal judge in their ongoing lawsuit against Vivendi over the 1984 cult film. Most importantly, the four have been given the green light to pursue a fraud claim.
The plaintiffs are seeking $400 million in damages after allegedly collecting very little from the motion picture and ancillary merchandising and music over the years.
In the latest round in the case, Vivendi and its StudioCanal division argued this dispute amounted to nothing more than an ordinary contract case. What was in focus was the "economic loss rule," which disallows the tortification of contractual harm. The plaintiffs responded that the rule didn't apply and stop the asserted fraud claim because Vivendi's acts were intentional.
U.S. District Court Judge Dolly Gee sided with the Spinal Tap co-creators.
"Here, Plaintiffs base many of the fraud allegations on conduct that goes above and beyond the 1982 Agreement’s obligations even though the events giving rise to the cause of action occurred in the context of the alleged contractual relationship between the parties," she writes.
Gee points to allegations that StudioCanal breached the agreement for the film by failing to provide required accounting statements and "separate nefarious accounting practices to conceal and underreport" profits "such as bundling unsuccessful films and music rights with [This Is Spinal Tap] in the Embassy catalogue, misrepresenting and manufacturing false expense deductions, self-dealing between subsidiaries, and lying about the recovery of a $1.6 million settlement."
The judge concludes this asserted misconduct amounts to more than false assurances of complying with an agreement.
At the moment, Shearer, Reiner, McKean and Guest have been less successful when it comes to claims asserted against Universal Music Group. They have trouble establishing a contractual relationship for purposes of their accounting claims, although the judge recognizes theories entailing corporate mergers and more, and will dismiss claims for now with permission for an amended complaint.
The four plaintiffs also attempted to pursue fraud against UMG, but that fails.
On one hand, Gee writes, "Given Plaintiffs’ allegations that Vivendi’s subsidiaries, including UMG, worked together to hide profits and manipulate revenue, and that Defendants have exclusive knowledge over the accounting process, it is plausible that Plaintiffs would not know all minute details of the alleged fraud."
But soon thereafter, she adds, "Yet, to maintain a fraud claim under an indirect misrepresentation theory, the plaintiff must also allege that the defendant intended or had reason to expect that the misrepresentation would be repeated and acted upon by the plaintiff. The [amended complaint] states that UMG has an obligation to report to and pay Studiocanal, which in turn reports to and pays Plaintiffs. The pleading does not allege, however, UMG’s knowledge — actual or implied — or reasonable expectation that Studiocanal would convey UMG’s report to Plaintiffs..."
At the moment, the only claim surviving against UMG pertains to plaintiffs' attempt to reclaim rights to their music under the termination provision of the Copyright Act. The judge concludes the controversy over the validity of termination notices is a ripe one.
The ruling is below.
Upon the decision, Shearer commented, " We look forward to finally getting our day in court, at a trial, with the evidence that to date Vivendi has tried to hide from us.”
The plaintiffs also have made a switch in their legal team. Peter Haviland at Ballard Spahr is out; Larry Stein at Russ, August & Kabat will be leading the charge moving forward.