Monday, May 12, 2008
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Disney Overpaid Royalties to ‘Roger Rabbit’ Creator—C.A.
By a MetNews Staff Writer
An author who sold the rights to cartoon characters depicted in his novel to Walt Disney Productions was not entitled to a percentage of the gross receipts earned at each level of the Disney corporate structure, this district’s Court of Appeal held Friday.
Reversing the trial court’s decision, Div. Seven determined that Los Angeles Superior Court Judge David Minning had improperly construed the term “purchaser” as used in the contract to include subsidiaries of the parent corporation. The panel remanded the case to the trial court for a recalculation of the respective financial obligations of Disney and Gary K. Wolf, author of the novel “Who Censored Roger Rabbit?”
The characters and story formed the basis of Disney’s 1988 hit movie “Who Framed Roger Rabbit?”, winner of three Oscars and a host of other awards.
Wolf sued Walt Disney Pictures and Television, alleging that Disney failed to fully compensate Wolf for its exploitation of the cartoon characters depicted in Wolf’s novel.
Disney filed a cross-complaint asserting causes of action for declaratory relief, reformation, money had and received and unjust enrichment. It maintained that it had adhered to its contractual obligations, and erroneously overpaid Wolf’s royalties.
For more than 10 years, Disney contended, it had operated in accordance with the view that Wolf was entitled to a royalty from the gross receipts earned by its subsidiaries and paid Wolf pursuant to that understanding of its obligation. But in its cross-complaint, Disney contended that Wolf was not entitled to royalties on receipts earned by Disney subsidiaries because the contract defined “purchaser” as including Walt Disney Productions and its successor, privies and assigns, but not Disney’s subsidiaries.
Over Disney’s objection, Minning submitted that issue to the jury. The jury found in Wolf’s favor, concluding the term “purchaser” included Disney’s then-present and future subsidiaries, and awarded $395,362 in damages.
Writing for the appellate court, Presiding Justice Dennis M. Perluss concluded that under the plain meaning of the actual language used by the parties and the contractual provisions delineating the royalty payments, Wolf was only entitled to a portion of the gross receipts of the Disney parent company, regardless of whether those revenues are generated by a third party or one of its subsidiaries.
The contract said that if the purchaser licensed any rights to others, Wolf would receive “a sum equal to five percent (5%) of Purchaser’s gross receipts,” that “[i]n the event that such a licensee is a subsidiary of Purchaser, then such royalties received by Purchaser from such subsidiary shall be deemed to be not less than five percent (5 %) of such subsidiary’s gross receipts derived from the exercise of such rights.”
This choice of language, Perluss wrote, was “highly significant” because it indicated that when the parties intended to include or identify subsidiaries, they knew how to do so.
Perluss also explained that the contractual language meant that the imputed minimum royalty guaranteed Wolf the same royalty percentage regardless of whether Walt Disney Productions licensed the Roger Rabbit characters to third parties or to one of its own subsidiaries. He noted that if Wolf were entitled to a royalty on the gross payments earned by Disney and its subsidiaries, there “would be no need to include any imputation protection.”
Thus, Perluss concluded, Wolf was only entitled to a royalty on the earnings of Disney subsidiaries only indirectly, based on Walt Disney Productions’ or its successors’ or assigns’ actual or imputed gross receipts.
Justices Fred Woods and Laurie D. Zelon joined Perluss in his opinion.
Wolf and his company were represented on appeal by Peter C. Smoot, J. Larson Jaenicke and Michael B. Garfinkel of Rintala, Smoot, Jaenicke & Rees. Martin D. Katz and Lisa N. Stutz of Sheppard Mullin Richter & Hampton represented Disney.
Copyright 2008, Metropolitan News Company