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Dennis Dreith, In His Capacity As v. Nu Image

July 19, 2011

DENNIS DREITH, IN HIS CAPACITY AS ADMINISTRATOR, FILM MUSICIANS SECONDARY MARKET FUND; THE FILM MUSICIANS SECONDARY MARKETS FUND, PLAINTIFFS-APPELLEES,
v.
NU IMAGE, INC., A CALIFORNIA CORPORATION;
MILLENNIUM FILMS, INC., A DELAWARE CORPORATION; BREAKSTREET PRODUCTIONS, INC., A CALIFORNIA CORPORATION;
WATCH PRODUCTIONS, INC., A CALIFORNIA CORPORATION, DEFENDANTS-APPELLANTS, AND PHOENICIAN FILMS, INC., A CALIFORNIA CORPORATION;
KOW KNUT PRODUCTIONS, INC., A CALIFORNIA CORPORATION;
SAD INCORPORATED, A NEW YORK CORPORATION;
LUNAR COP PRODUCTIONS, AN ENTITY OF UNKNOWN INCORPORATION;
TSE TSE FLY PRODUCTIONS, A CALIFORNIA LIMITED LIABILITY COMPANY; FLY PRODUCTIONS, INC., A CALIFORNIA CORPORATION;
BIG TRUCK PRODUCTIONS, INC., A CALIFORNIA CORPORATION;
CHASE THE MOON, INC., A CALIFORNIA CORPORATION;
SCARRED PRODUCTIONS, INC., A NEW YORK CORPORATION, DEFENDANTS.



Appeal from the United States District Court for the Central District of California Stephen V. Wilson, District Judge, Presiding D.C. No. DOG 2:05-cv-04146-SVW-MAN

The opinion of the court was delivered by: Trott, Circuit Judge:

FOR PUBLICATION

OPINION

Argued and Submitted June 9, 2011-Pasadena, California

Before: Robert R. Beezer, Stephen S. Trott, and

Pamela Ann Rymer, Circuit Judges.

Opinion by Judge Trott

OPINION

The Defendants below, Appellants here, engaged in discovery misconduct that was sufficiently egregious to cause the district court to enter an order of default against them. Although they now contend for a variety of reasons that the default order was erroneous, the Defendants did not challenge the order of default by way of Federal Rule of Civil Procedure 55(c) or 60(b). Six months later, at the Plaintiffs' request, the district court entered default judgment against them with respect only to liability, but deferred ruling on damages pending further briefing and evidentiary submissions. In their papers opposing this request, the Defendants chose not to attack the default order, opting instead to argue that a default judgment was not appropriate. They asserted that "the court should exercise its discretion to deny Plaintiff's application for default judgment."

In ruling against them, the district court revisited the propriety of the order of default and concluded, in light of Malone v. United States Postal Service, 833 F.2d 128, 130 (9th Cir. 1987), that the order was appropriate. The district court also issued a precisely detailed disclosure order to the Defendants requiring them to produce information the court needed to calculate damages. When they appeared to fail to comply with this disclosure order, the district court assigned the matter to a magistrate judge to determine if in fact the disclosure order had gone unheeded.

The magistrate judge held that the Defendants indeed had not complied. When the district court finally had all the information it needed, it conducted a full, contested, and comprehensive hearing on damages and entered judgment on behalf of the Plaintiffs in the amount of $1.1 million. During this process, the district court commented that "Defendants are trying to evade the requirements of the [Collective Bargaining Agreement] which, of course, is consistent with Defendants' general approach to this litigation."

The Defendants timely appeal, challenging only the legal validity of the district court's original order of default, but not the ensuing default judgment on liability itself or the denial of their motion for summary judgment on that issue. Nor do they challenge the district court's careful and thorough decision with respect to damages. We affirm.

I

According to the unchallenged declaration of James R. Cope, the effective beneficiaries of this action are musicians who have banded together in an entity known as the Film Musicians Secondary Markets Fund ("Musicians Fund" or "Fund"). These musicians are contractually entitled to deferred wages derived from revenues earned in the secondary market of the films they helped create. These monies, known as residuals, come from the distribution of films after the films have been initially released.

The Musicians Fund is the creation of master collective bargaining agreements between the motion picture industry and the American Federation of Musicians of the United States and Canada. Distilled to its essence, this agreement ("CBA") requires motion picture companies to keep records on subsequent releases of films and to report on and pass to the Musicians Fund all monies owed to it, a sum which is calculated according to a fixed formula in the CBA. The Musicians Fund in turn distributes these residuals to the musicians to whom they are owing.

The various producers and secondary market distributors of these films are typically covered, as illustrated by this case, by Assumption Agreements, which make the films subject to the CBA. Signatories agree expressly for the benefit of the Musicians Fund to make the payments required, and "that the [Musicians Fund] shall be entitled to seek injunctive relief and damages." Moreover, a signatory "agrees to keep or have access to complete books and records showing the income . . . and the Administrator of the [Musicians Fund] shall have the right at all reasonable times to examine and inspect such books and records."

The films in this case are subject to those rules regarding inspection, as set forth in the relevant Assumption Agreements and other documents. Needless to point out, this arrangement puts the Musicians Fund and the musicians at the mercy of the film companies' (collectively, the "Companies") willing compliance with their obligations under the CBA, obligations which the Companies appear to have ignored.

II

The Musicians Fund started informally to attempt to enforce its rights under the CBA in 1998, writing to the companies seeking information and payment. Then, the problems began, as evidenced by Nu Image's lawyer's irrelevant claims that it was "not a signatory to the CBA," a denial which ignored the Assumption Agreements. Eventually, the Musicians Fund attorney wrote to Nu Image in 2004 stating the following:

I understand that subsequent to my letter of last year to you, Nu Image, et al. and Mr. Cope have had discussions concerning the films and that Nu Image, et al. have expressed a wish to work with the Fund to research and resolve the matter. I further understand that there have been delays caused by the difficulty in researching some of the matters and by a personal tragedy. The Fund has, of course, accommodated these delays, but must now ask that the matter be brought to an overdue conclusion.

By Monday, July 12, 2004, please therefore call or write either Mr. Cope . . . or me, to resolve this matter promptly without the necessity of a lawsuit. Otherwise, the Fund will file an action in the United States District Court seeking full payment, interest, liquidated damages and cost of enforcement (including the Fund's attorneys' fees).

We previously forwarded a courtesy copy of a form of draft Complaint. In light of Nu Image's previous indication that it would resolve the matter, the Fund has not yet filed a lawsuit. Based on recent information, we will file an expanded action. We hope to avoid litigation, but will pursue the matter through judgment and collection if you do not take this final opportunity. Please call with any comments or question, or if we may provide further information. (emphasis added). Nu Image did not respond. Counsel wrote again on April 27, 2005, saying delay would no longer be accommodated. No response. Accordingly, the Musicians Fund was forced to resort to legal action and to file this lawsuit.

III

On June 8, 2005, Dennis Dreith sued several of the offending movie production companies in his capacity as administrator of the Musicians Fund. The suit alleged at its core that the Companies had failed to pay owed residuals to musicians who performed film soundtracks, in violation of the CBA. The district court issued a case notice admonishing counsel, inter alia, that non-compliance with the local rules and Federal Rules of Civil Procedure "MAY LEAD TO THE IMPOSITION OF SANCTIONS WHICH MAY INCLUDE THE STRIKING OF PLEADINGS AND ENTRY OF JUDGMENT OR DISMISSAL OF THE ACTION." This notice ordered the parties - as contemplated by Federal Rule of Civil Procedure 26(a)(1) - to schedule an initial meeting and file a joint report thereon. The Companies immediately responded to the order not with compliance, but with motions to dismiss and for a more definite statement. The Companies refused to meet or file the requisite joint report, arguing that they were excused from so doing ...


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