Metropolitan News-Enterprise


Friday, April 10, 2015


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C.A. Disallows Royalty Suit by Producers of ‘Napoleon Dynamite’


By a MetNews Staff Writer


The producers of the surprise hit film Napoleon Dynamite are not entitled to the additional royalties they are claiming from the distributor, the Court of Appeal for this district ruled yesterday.

Div. Two, in an unpublished opinion by Presiding Justice Roger Boren, said Napoleon Pictures Limited failed to prove the existence of an alleged oral agreement by Fox Searchlight Pictures, Inc. to pay the producers 31.66 percent of video sales.

“The claimed undocumented oral understanding contradicts the parties’ written agreement, which states that rentals have a high royalty rate while sales royalties are at 10 percent,” Boren wrote.

Napoleon Pictures sued Fox in August 2011 claiming it was owed at least $10 million in allegedly underreported royalties and improper revenue deductions from the 2004 comedy starring Jon Heder. The film, which cost less than $500,000 to make, grossed more than $44.5 million domestically in theaters and $139 million in DVD sales.

Fox Searchlight acquired rights to the film at the 2004 Sundance Film Festival, where it premiered and became the most-sought after film by distributors. Entertainment lawyer John Sloss, a veteran of more than 400 independent film deals, represented Napoleon in negotiations with Fox vice-president Joseph DeMarco.

A term sheet signed three days after the premiere gave Napoleon $4.75 million for the film, plus a 50 percent gross profits participation rate. A fully executed agreement was not signed until May 2004, three months after Sundance.

An exhibit attached to the agreement provided for a “sell-through royalty” of 10 percent of moneys derived from sales of videos, and a “high price sales/rental royalty,” of 31.66 percent, on  money received from video cassette distribution to wholesale dealers, which are intended for rental by the public. Jeremy Coon, who produced the film with an initial investment from his family and signed the agreement on behalf of Napoleon Pictures, later claimed that he did not see the exhibit until two months after the agreement was signed.

After a years-long audit of film revenues, which Napoleon demanded in 2006, Napoleon sued for breach of contract, promissory estoppel, negligent misrepresentation, reformation, and an accounting.

Among its claims was that DeMarco—who died three years before the complaint was filed—represented that there would be an overall net royalty of about 25 percent of profits from home video sales. Sloss said that was consistent with other deals he had done with DeMarco, while Fox was to claim that it traditionally took a harder line on royalties when, as in this case, it had paid top dollar for the film.

The parties stipulated to the appointment of retired Los Angeles Superior Court Judge Patricia L. Collins as referee to try the case. Collins largely sided with Fox, finding in an 80-page report that Napoleon was only entitled to $150,000, based on some accounting irregularities unrelated to the video sales.

Collins found for Fox on the royalty issue, based on the language of the exhibit.  She rejected Sloss’ testimony, finding it was “not only contrary to the terms of an expressly integrated agreement, but is not memorialized or confirmed in a single piece of paper” or e-mail.   It “strains reason,” she said, to believe that an aggressive, experienced lawyer like Sloss would not document a purported oral agreement of that magnitude.

Judge Bobbie Tillmon confirmed Collins’ findings and ordered that judgment be entered accordingly.

Boren, writing yesterday for the Court of Appeal, said the referee’s findings were supported by substantial evidence.

The exhibit that Coon claimed he never said, the jurist noted, was part of a standard agreement that Sloss and his colleagues had a duty to familiarize themselves with. Even if they hadn’t received it, he added, they had to be aware of it once Fox’s in-house counsel referred to it in correspondence that began before the contract was executed, and could have easily obtained a copy, Boren said.

“A contracting party is bound by terms contained in an unattached, but easily available, Exhibit A,” the jurist wrote.

Boren went on to agree with the referee that the contract was unambiguous, rejecting Napoleon’s claim that parol evidence of the oral understanding between Sloss and DeMarco was controlling.

Attorneys on appeal were Jeremy B. Rosen and John F. Querio of Horwitz & Levy and Martin D. Singer and Allison S. Hart of Lavely & Singer for Napoleon and Linda M. Burrow, Michael D. Roth, and Kelly Perigoe of Caldwell Leslie & Proctor for Fox.

The case is Napoleon Pictures Limited v. Fox Searchlight Pictures, Inc., B248601.


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