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Shropshire v. Fred Rappoport Co.

October 03, 2003

ELMO SHROPSHIRE, ET AL., PLAINTIFFS,
v.
THE FRED RAPPOPORT COMPANY, DEFENDANT.



The opinion of the court was delivered by: Joseph C. Spero United States Magistrate Judge

ORDER: DENYING MOTION OF DEFENDANT THE FRED RAPPOPORT COMPANY: (1) TO DISMISS FOR FAILURE TO STATE A CLAIM UPON WHICH RELIEF CAN BE GRANTED, OR, IN THE ALTERNATIVE, TO STAY ACTION; AND (2) TO DISMISS FOR IMPROPER VENUE, OR, IN THE ALTERNATIVE, TO TRANSFER FOR IMPROPER VENUE, OR, IN THE ALTERNATIVE, TO TRANSFER FOR CONVENIENCE [Docket No. 10]; and DENYING MOTION OF DEFENDANT THE FRED RAPPOPORT COMPANY TO STRIKE SECOND CLAIM FOR RELIEF FOR INTENTIONAL INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE, THIRD CLAIM FOR RELIEF FOR NEGLIGENT INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE, AND FOURTH CLAIM FOR RELIEF FOR UNFAIR COMPETITION AS "SLAPP" ACTIONS UNDER SECTION 425.16 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE; REQUEST FOR ATTORNEY'S FEES AND COSTS [Docket No. 13]

I. INTRODUCTION

On Friday, September 19, 2003, at 9:30 a.m., the following motions came on for hearing:

1. Motion Of Defendant The Fred Rappoport Company: (1) To Dismiss For Failure To State A Claim Upon Which Relief Can Be Granted, Or, In The Alternative, To Stay Action; And (2) To Dismiss For Improper Venue, Or, In The Alternative, To Transfer For Improper Venue, Or, In The Alternative, To Transfer For Convenience (the "Motion to Dismiss"); and

2. Motion Of Defendant The Fred Rappoport Company To Strike Second Claim For Relief For Intentional Interference With Prospective Economic Advantage, Third Claim For Relief For Negligent Interference With Prospective Economic Advantage, And Fourth Claim For Relief For Unfair Competition As "SLAPP" Actions Under Section 425.16 Of The California Code Of Civil Procedure; Request For Attorney's Fees And Costs (the "Motion to Strike"). For the reasons stated below, both Motions are DENIED.

II. BACKGROUND

A. Facts

Plaintiffs, Elmo Shropshire and Elmo Publishing, (collectively, "Elmo Shropshire") and nonparty Kris Publishing are co-owners of the copyright to the song "Grandma Got Run Over By A Reindeer" ("the Song"). Complaint at ¶ 6. In May of 1993, Defendant, The Fred Rappoport Company, ("FRC") contacted Elmo Shropshire to inquire about creating an animated motion picture based on the Song ("the Program"). Id. at ¶ 7. According to Elmo Shropshire, Fred Rappoport, of FRC, came to San Francisco in "January and February of 1994" to discuss production of the Program with Elmo Shropshire. Declaration of Elmo Shropshire in Opposition to Defendant's Motion to Dismiss and Motion to Strike ("Shropshire Decl.") at ¶ 3; see also Complaint at ¶ 7. But see Declaration of Fred Rappoport in Support of Motion of Defendant the Fred Rappoport Company to Dismiss for Improper Venue or, in the Alternative, to Transfer for Improper Venue, or, in the Alternative, to Transfer for Convenience ("Rappoport Decl.") at ¶ 7 (stating that Rapport's "only contact . . . with the District in connection with the claims alleged against it was one trip to San Francisco in which [he] met with Elmo Shropshire before the execution of the Agreement") (emphasis added). While Fred Rappoport was in San Francisco, he asked for the exclusive merchandising rights to the Song, which request was denied. Complaint at ¶ 8. The parties continued to negotiate, and in March of 1995, FRC again asked for exclusive merchandising rights. Id. at ¶ 9. Again, the request was denied. Id.

On May 24, 1996, Elmo Shropshire and FRC signed a Dramatic Rights Agreement ("the Agreement"). Id. at ¶ 10; see also, Exh. 1 to Complaint (Agreement). Elmo Shropshire signed the Agreement in Marin County, California. Id.; see also Shropshire Decl. at ¶ 14 (stating that Elmo Shropshire signed the Agreement in "Northern California"). Under the Agreement, Elmo Shropshire and Kris Publishing granted FRC an option, to expire on May 31, 1998, to obtain certain rights in the Song, described in Paragraph 3 as follows:

RIGHTS. Upon execution of the Exclusive Rights Period, Publishers shall grant to [FRC] the exclusive dramatic rights and synchronization license to the Song for any television, or any other audio/visual presentation, theatrical or film presentation/programs based upon the song. These rights extend to all media existing or hereafter existing for the purposes of exploitation and promotion of the presentation/ programs. None of the Rights granted to [FRC] herein shall be restrictive to Publishers in their normal business of licensing the Song for mechanical recordings (cassettes, compact discs, or other recorded media), synchronization rights (video, films, television programs, commercials, etc.), performance royalties, print royalties or any other royalties, as long as such royalties are not derived by products which include any dramatic use of the plot or characters as part of the license.

Agreement at ¶ 3, Exh. 1 to Complaint. With respect to merchandising, the Agreement provided as follows:

MERCHANDISING. Publishers will share in the Net Profit amounts retained by Company from merchandising. Company will have the exclusive right to merchandise material from the Programs. Company will retain a 30% fee, plus normal and reasonable expenses related to the merchandising, and pay fifty percent (50%) of the remainder, which is considered Net Profits, to the Publishers. Such amounts shall be accounted for and paid to Publishers within a reasonable period of time, not to exceed six (6) months after receipt of these amounts by Company.

Id. at ¶ 7. The Agreement provided that FRC would pay 25% of net profits to Elmo Shropshire and Kris Publishing. Id. at ¶ 8. Finally, the Agreement could be terminated by Elmo Shropshire and Kris Publishing if FRC did not "complete a production and deliver such production of the Program to a broadcaster, advertiser, syndicator or distributor for the intent of worldwide distribution before two (2) years following the execution of the Exclusive Rights Period." Id. at ¶ 4.

FRC exercised the option granted under the Agreement on May 31, 1998, and therefore, FRC had until May 31, 2000, to complete and deliver the Program to a broadcaster for worldwide distribution. Complaint at ¶ 15.

Elmo Shropshire was a principal writer and actor in the Program. Id. at ¶ 12; see also Shropshire Decl. at 15. Elmo Shropshire wrote the script for the Program in Marin County, California, Shropshire Decl. at ¶ 15. He accepted numerous calls from FRC while he was in Marin County regarding re-writes to the script, id. at ¶ 16, and received payments for his work on the Program in Marin County. Id. at ¶ 17.

In 1999, a dispute arose concerning a deal that was being negotiated between Elmo Shropshire and Kris Publishing, on the one hand, and a toy maker, Dan-Dee International, Ltd. ("Dan-Dee"). Complaint at ¶¶ 52-60. Under the proposed agreement, Dan-Dee was to manufacture a line of toy dolls containing a computer chip that played the Song and pay Elmo Shropshire and Kris Publishing $0.28 per doll. Id. at ¶ 44. Under the agreement, Dan-Dee was to be indemnified for any claims arising out of the use of the Song. Id. at ¶ 56. On May 28, 1999, FRC claimed that it had exclusive merchandising rights under the Dramatic Rights Agreement and threatened to sue Dan-Dee if it went through with the deal. Id. at ¶ 54. As a result, Kris Publishing refused to sign the deal and the deal fell through. Id. at ¶¶ 56-57. Subsequently, Dan-Dee took a compulsory licence of the Song paying Elmo Shropshire and Kris Publishing $0.755 per doll. Id. at ¶ 58. Faced with a threat by Dan-Dee to hire its own musicians to perform the song, Elmo Shropshire agreed to a license to Dan-Dee for use of the Song in the toy in return for payment to Elmo Shropshire and Kris Publishing of $0.755 per doll. Id. at ¶ 59.

On October 6, 1999, FRC sued Ellyn Trigg, Kris Publishing, Elmo Shropshire and Elmo Publishing in California Superior Court ("the state court action"), seeking a declaratory judgment that FRC owned the exclusive merchandising rights to the Song. Complaint at ¶ 60. In the state court complaint, the plaintiffs alleged that they had performed all of their obligations under the agreement. See Request to Take Judicial Notice in Support of Motion of Defendant the Fred Rappoport Company ("Request for Judicial Notice"), Exh. 1 (State court complaint) at ¶ 10.*fn1 In their answer, which was signed on December 24, 1999, the defendants admitted this allegation to be true. Id., Exh. 2. Subsequently, the plaintiffs sought to amend their complaint when they learned, through discovery, that Dan-Dee had obtained its licensing rights under the compulsory licensing provisions of the Copyright Act rather than directly. See id., Exh. 3 (Stipulation Re: Filing of First Amended Complaint). The defendants did not object to the amendment of the complaint, and signed a stipulation providing that Dan-Dee would file an amended answer but that "[t]he Answers filed by defendants Shropshire and Trigg to the original Complaint may be deemed to be their Answers to the First Amended Complaint." Id. at ¶ 3. The Stipulation was filed on July 25, 2000. Id.

The superior court issued a Statement of Decision on August 31, 2001. Id., Exh. 5 (Statement of Decision). In the Statement of Decision, the superior court determined that the language of the agreement with respect to merchandising rights was ambiguous and therefore, parol evidence could be considered. Id. at 13. The court reviewed the evidence regarding the negotiation of the agreement and concluded that there was no meeting of the minds with respect to merchandising rights, with each side harboring a different understanding of what merchandising rights had been granted when the agreement was signed. Id. The court then addressed the rights and duties of the parties, noting that although the usual remedy where there is no meeting of the minds is rescission, the parties did not request rescission. Id. at 15. The court noted also that rescission would be impractical because "the major operative portions of the contract (e.g. the development of the working script, the animation of the program, arranging its initial telecast) had already been completed and, therefore, rescission would be extremely difficult especially as to the remedy's component requiring' restoration of value' by both sides." Id. The court then concluded both sides had an equal claim to the merchandising rights under the Agreement. Id. at 16.

The parties appealed the decision, and the court of appeal reversed. Exh. 2 to Complaint. The court of appeal concluded that the Agreement was unambiguous and that it did not give FRC exclusive merchandising rights to license the Song for use in Dan-Dee's stuffed toy. Id. at 13. Accordingly, on February 6, 2003, judgment was entered in favor of the defendants in the state court action, Elmo Shropshire, Shropshire Publishing, Ellyn Trigg, and Kris Publishing. Id. at 14.

On May 24, 2000, FRC delivered what Elmo Shropshire alleges to have been an "incomplete animated motion picture" based on the Song to Odyssey Network ("Odyssey"), in Los Angeles, and paid Odyssey to broadcast the program. Complaint at ¶ 16. In particular, the program did not include two songs and corresponding scenes. Id. at ¶ 20. Also, the credits on this incomplete program were different from those that appeared at the end of the complete program. Id. According to Elmo Shropshire, FRC did not deliver the program to Odyssey with the intent that it would be distributed worldwide. Id. at ¶ 18. On the same day the incomplete program was delivered to Odyssey, Elmo Shropshire requested a VHS copy of the program. Id. at 22. FRC told Elmo Shropshire that if he wanted to view the program, he would have to come to Los Angeles, at his own expense, to do so. Id. at ¶ 23. Elmo Shropshire went to Los Angeles and screened the program that had been delivered to Odyssey on June 14, 2000. Id. at ¶ 25. On September 11, 2000, Elmo Shropshire notified FRC that it had not completed and delivered the program with the intent of worldwide distribution by May 31, 2000, and therefore, FRC's rights to the Song were terminated. Id at ¶ 27.

According to Elmo Shropshire, after FRC's rights were terminated, it continued to represent to third parties that it had the rights to the Song, and distributed and broadcast a complete version of the program on numerous networks. Id. at ¶¶ 29-34. FRC has made no payments to Elmo Shropshire for these broadcasts. Id. at ¶¶ 36, 37.

B. Procedural Background

Plaintiffs filed this action on May 23, 2003, and asserted the following claims in their complaint:

Claim One: Copyright Infringement in violation of the Copyright Act, 17 U.S.C. §§101 et seq.;

Claim Two: Intentional Interference with Prospective Economic Advantage;

Claim Three: Negligent Interference with Prospective Economic Advantage;

Claim Four: Unfair Competition, in violation of Cal. Bus. & Prof. Code §§ 17200 et seq.;

Claim Five: Breach of Contract;

Claim Six: Accounting.

On July 25, 2003, Defendant filed the Motion to Dismiss and the Motion to Strike. In the Motion to Dismiss, Defendant makes the following arguments:

1. Estoppel: Defendant asserts that Plaintiffs' copyright infringement claim should be dismissed under the doctrines of judicial, equitable, and collateral estoppel because Plaintiffs admitted in the state court action that Defendant performed under the Agreement and because the court relied on this admission in its holding. Defendant argues further that if the Copyright infringement claim is ...


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