Paul Haggis, Inc. v. Persik Productions
Filed 1/31/14 Paul Haggis,
Inc. v. Persik Productions CA2/1
OFFICIAL REPORTS
California Rules
of Court, rule 8.1115(a), prohibits courts and parties from citing or relying
on opinions not certified for publication or ordered published, except as
specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION ONE
PAUL HAGGIS,
INC., et al.,
Plaintiffs and Respondents,
v.
PERSIK
PRODUCTIONS, INC., et al.,
Defendants and Appellants.
B240556
(Los
Angeles County
Super. Ct. No.
BC381582)
APPEAL
from a judgment of the Superior Court of
Los Angeles County. Daniel J.
Buckley, Judge. Affirmed.
Nahai
Law Group, Behzad Nahai, and Edward Wei for Defendants and Appellants.
Ropers,
Majeski, Kohn & Bentley, Terry Anastassiou; Arent Fox and Richard L.
Charnley for Plaintiffs and Respondents.
____________________________________
This is an action by writer-director
Paul Haggis and others involved in the Oscar-winning film Crash for
compensation they claim is due them under their contract with the film’s
principal backer, Persik Productions, Inc.
In a bench trial the court found for the plaintiffs and awarded them
over $12,000,000 in damages and prejudgment interest. We conclude that appellants have not
carried their burden of showing prejudicial
error, and we therefore affirm.
FACTS AND PROCEEDINGS BELOW
In
summarizing the facts we view the evidence in the light most favorable to the
judgment. (Roby v. McKesson Corp. (2009) 47 Cal.4th 686, 693-694.)
The
plaintiffs in this action are Paul Haggis, who directed and co-wrote Crash, Bobby
Moresco who co-wrote and co-produced the film, Mark Harris, a co-producer, and
Brendan Fraser, an actor in the film. We
refer to the plaintiffs collectively as Haggis.
The defendants are Persik Productions, Inc which provided the
financing for the film and Persik’s various subsidiaries which managed the finances
and distribution of the film. We refer
to the defendants collectively as Persik.
A. The
Parties’ Agreement
In 2002, Haggis contracted with Persik to provide writing,
directing and acting services for the film in return for a flat fee and contingent
compensation (referred to in the contract as “third party participationsâ€)
based on the film’s gross revenue after deducting certain expenses. The budget for the film was between $7 and $8
million and it was made within budget. The
disputes in this case arose when the revenue from the film reached the “third
breakeven†point (a term defined in the contract).
The contract states in relevant part that, when the “gross
receipts received by Persik†reach the “[t]hird [b]reakeven†point, Haggis and
Persik would share the adjusted gross receipts 50/50. The term “gross receipts†is defined in the
contract as “all sums actually received by . . . or credited to, or on behalf
of, Persik, its subsidiaries and affiliated entities[.]†Under the contract Persik could deduct some of
the film’s domestic sales and distribution fees from gross revenue before
distribution to Haggis but at the third breakeven point this deduction was
capped at 32.5 percent. Finally, the
contract stated that it “shall be subject to such other terms and conditions as
are customary in the entertainment industry[.]â€
These terms were provided in a “short form†contract and no long form
contract was ever executed.
After Haggis and Persik entered into their contract, Persik, sold
its rights in the film to ApolloProScreen (Apollo) which then licensed some of the
rights back to Persik.
name="_ftnref2" title="">[2] Under an agreement
between Persik and Apollo, Persik, through its subsidiary, Crash Distribution,
LLC, set up two collection and management accounts (CAMs) with an independent
company, Fintage, to receive, pay out and account for revenue generated by the
film.
For each accounting period, the expenses incurred in the
production and distribution of the film, including third party participations,
were paid from the CAMs. Apollo and
Persik then split the remaining amounts in equal shares.
Crash was released in the Spring of 2005 and was a commercial
and critical success winning three Academy Awards including the Oscar for Best
Picture.
Following the film’s release Persik prepared quarterly
statements and sent them to Apollo for approval after which the company
handling the CAM accounts distributed money to Haggis based on
instructions from Persik. In ordering
those distributions Persik did not treat Apollo as a “third party participantâ€
nor did it claim that it never received the “gross receipts†from the film.
In September 2006, Haggis hired a certified public
accountant, Steven Sills, to conduct an audit of Persik’s accounting for Crash. Sills reported to Haggis and Persik a
number of errors in the accounting that had reduced the contingent compensation
Persik owed to Haggis.
After Sills’s audit showed that Persik owed Haggis more than
$1 million, Persik’s chief financial officer, Dennis Brown, claimed that he had
discovered a “mistake†that had been made from the start in the method of calculating
“third party participations†and that Haggis had actually been overpaid, not
underpaid. According to Brown, the mistake
was in failing to include Apollo and DEJ, the film’s major financiers, among
the “third party participants†entitled to a share of the film’s gross receipts
which reduced the profits available for distribution to Haggis.
Sills’s 2006 audit also found that at some earlier point in
time Persik had bought out the distribution rights of one company (DEJ
Productions) and sold them to another distributor, Lions Gate. The buyout cost half-a-million dollars which
Persik deducted from gross revenue before allocating profits to Haggis. In Sills’s opinion this deduction violated
the 32.5 percent cap on deductible distribution expenses under the
contract. (See explanation of the
contract at pp. 2-3, ante.)
B. The Lawsuit
In 2007, Haggis filed a complaint
against Persik for breach of contract, declaration of constructive trust and an
accounting. The parties stipulated to a bifurcated
trial in which the court first conducted a bench trial on the declaratory
relief cause of action. The issues to be
tried in this “Phase 1†were: “(a)
whether payments to Apollo Proscreen and DEJ Productions, Inc. are
properly deductible as ‘third party participations,’ ‘payments to third-party
participants,’ or ‘distribution expenses,’ and (b) whether payments to
Syndicate Films International . . . are deductible as foreign sales agency
fees.†The parties further stipulated to
the appointment of a referee to try Phase 1 of the case.
After hearing testimony from the
parties and from experts on motion picture contracts and financing, and after reviewing
the documents offered in evidence, the referee found in Haggis’s favor on both
issues. Persik does not challenge those
findings on appeal.
As to the first issue the referee found that the terms
“‘third party participants’ and ‘third party contingent participants’ are
‘words of art’ which are customarily used in motion picture agreements . . .
and . . . were understood by all those who negotiated and drafted the agreement
and were well known to them. . . . The overwhelming credible testimony is that
a financier of the motion picture was not meant to be included in the term
‘third party participants’ and ‘third party contingent participants.’†The trial court adopted the referee’s finding.
On the second issue the referee found that Persik contracted
with Arclight to handle international distribution of the firm and then paid
Arclight $400,000 to terminate that contract so that it could use one of its
affiliated companies, Syndicate Films International, to distribute Crash. He further found: “Syndicate was not entitled to charge any
foreign sales fees for the territories previously sold by Arclight. It, however, did so. This would in effect be doubling up the fees
charged. Arclight had already charged
its sales fee. Syndicate likewise
charged its full sales fee for servicing the territories which had already been
sold by Arclight.†Moreover, the referee
found that “[e]ven a 5% . . . charge by Syndicate to [Haggis] on the sales made
to foreign distributors by Arclight would be improper because the cap on
distribution fees of 32.5% had already been reached.†(See explanation of the contract at pp. 2-3,
The trial court also court adopted this finding.
The court also declared the
following findings by the referee to be of “special significance†for its
decisions in Phase 2 of the trial—the claims for
The referee found that the agreements between the parties
“are typical motion picture agreements containing unique terms typically used in
the entertainment [industry] . . . and were negotiated by very experienced
attorneys[.]†Therefore, the agreements
are “to be interpreted in accordance with industry standards as understood by
persons in the motion picture industry[.]â€
In addition, the referee found “[t]he testimony of the
lawyers who actually drafted [the agreements] . . . to be more credible than
that of [the defendants]†in interpreting the agreements. Accordingly, the court stated that it “gave
little, if any, weight to the testimony of these defense witnesses.â€
Finally, the referee found that it was not until Sills’s
audit showed Persik owed Haggis “a significant amount of money†that Persik “‘discovered’
. . . that a ‘mistake’ had been made in prior statements†and that the payments
Persik made to Apollo “could be charged as ‘third party contingent
compensation’ and thus reduce the profit shares of [Haggis].†To the referee’s report, the court added parenthetically:
“This Court questions whether this was
truly a mistake. The initial—and
contractual—intent of the defendants was revealed by their actions, not by the
words of counsel’s arguments at trial.â€
2
In Phase 2 of the trial Persik
contended that the interpretation of the contract it advocated in Phase 1—that
payments to Apollo should be charged as third party compensation—was
paid to Apollo should never have been included in the film’s “gross receiptsâ€
because it was never “received by Persik.â€
(See summary of the contract at p. 2, ante.)
The attorneys who represented Haggis
and Persik in negotiating the agreement rejected this interpretation of the
contract between their clients
as did the person who negotiated Apollo’s financing agreement with Persik and as
did Sills, the auditor. Sills testified
that in reviewing the statements Persik generated before his audit he found
that Persik reported all of the revenue from the film as gross receipts.
Only Brown, Persik’s chief financial officer, testified in
support of Persik’s new interpretation of the agreement. The court found Brown’s testimony “to lack
credibility†because Brown was a Persik “insider†who “has been in the employ
of [Persik] for years†and did not have “sufficient industry experience or
background to provide reliable expert opinion testimony on whether amounts
taken by Apollo were properly included or excluded from the [p]icture’s ‘gross’
[receipts].â€
The court concluded “the evidence clearly established that
all of the defendant entities are under the same ultimate ownership and
control†of Bob Yari and Davand Holdings LLC who “at all times acted as puppet
masters with respect to the control and management of the instant
litigation.†The court further concluded
that the defendant entities “are jointly and severally liable to plaintiffs for
damages [for] their breach of the plaintiffs’ contracts.â€
Based on the findings described above, the court ruled that
Persik “breached the contracts with the plaintiffs by diverting funds to third
parties; adopting bogus contractual interpretations; refusing to correct
accounting errors in a timely fashion; adopting inappropriate accounting
procedures that were contrary to industry standards; and, in the final analysis,
using all of these to avoid paying plaintiffs money due under the
contracts.†Finally, the court declared
“that defendants hold money and assets acquired as a constructive trustee and
an award of all damages and disgorgement of any profits that defendants have
enjoyed as a constructive trustee in possession of plaintiffs’ property.â€
The court awarded Haggis $9,113,960 in damages plus
$2,551,310 in prejudgment interest.
Persik filed a timely appeal.
DISCUSSION
FOR PURPOSES OF
CALCULATING THE SUMS DUE TO HAGGIS, “GROSS RECEIPTS†INCLUDE ALL THE REVENUE
GENERATED BY THE FILM.
Paragraph 13(b) of the contract between Haggis and Persik
provides that Haggis will share in a percentage of the gross receipts “actually
received by . . . or credited to, or on behalf of Persik, its subsidiaries and
affiliated entities, resulting from the distribution or other exploitation of
the [film] and all rights therein†after deductions for certain expenses
pursuant to a formula set out in the contract.
Persik maintains that this provision means that Haggis is not entitled
to a percentage of all gross receipts
from the film but only a percentage of gross receipts “actually received†by
Persik. Therefore, Persik argues, revenue
distributed directly to Apollo through the CAMs does not count as gross
receipts “actually received†by Persik and cannot be used in calculating
Haggis’s third party participation. The
trial court disagreed and ruled that under the
Haggis-Persik contract “money taken by Apollo could not be ‘deducted’ when
calculating profit participations [for Haggis].†The trial court was correct.
The role of the court in interpreting a contract was
summarized in Wolf v. Walt Disney
Pictures & Television (2008) 162 Cal.App.4th 1107. We quote portions of that summary here. “The
interpretation of a contract is a judicial function.
this function, the trial court ‘give[s] effect to the mutual intention of the
parties as it existed’ at the time the contract was executed. Ordinarily, the objective intent of the
contracting parties is a legal question determined solely by reference to the
contract’s terms. [¶] The court generally may not consider extrinsic
evidence of any prior agreement or contemporaneous oral agreement to vary or
contradict the clear and unambiguous
interpret an agreement when a material term is ambiguous. [¶] When the meaning of the words used in a
contract is disputed, the trial court engages in a three-step process. First, it provisionally receives any proffered
extrinsic evidence that is relevant to prove a meaning to which the language of
the instrument is reasonably susceptible. If, in light of the extrinsic evidence, the
language is reasonably susceptible to the interpretation urged, the extrinsic
evidence is then admitted to aid the court in its role in interpreting the
contract. When there is no material
conflict in the extrinsic evidence, the trial court interprets the
contract as a matter of law.†(
The contract between Haggis and Persik shows that, at the
time it was executed, the parties intended that Haggis’s participation payments
would be based on all gross receipts of the film. We reach this conclusion because there can be
no doubt that this would be the result if Apollo had never appeared on the
scene. At the time Haggis and Persik
entered into their contract Persik was the sole financier and its subsidiaries
and affiliated entities controlled the receipt of all the revenue from the
film.
Persik who could have “actually received†the gross revenues from the film.
Persik acknowledges that its contract
with Haggis “was signed months before there were ever even discussions, much
less an agreement, with Apollo.†(Emphasis omitted.) Persik did not enter a financing deal with
Apollo until a year later. As explained
by Neil Sacker, the attorney who negotiated the contract with Haggis on
Persik’s behalf: “Persik was going to be
the financier and so it was supposed to capture all of the . . . receipts that
we received, as it says, from distribution or any other exploitation[.] So basically . . . all of the receipts from
the exploitation of the film went into the pot . . . were gross receipts.†Persik could not alter what it promised
Haggis under their contract by entering into a subsequent contract with
Apollo.
Although the contract between Persik and Apollo provided that
they would share the gross receipts of the film their contract stated: “All participations and deferments shall be
calculated by aggregating Apollo [g]ross
[r]eceipts and [Persik] [g]ross [r]eceipts.â€
(Emphasis added.) Thus, whether
money from the film was “actually received†by Persik or by Apollo it counted
as gross receipts for purposes of calculating Haggis’s profit participation.
Furthermore,
a party’s predispute, post-contracting conduct can be powerful evidence of that
party’s intent at the time it entered into the agreement. (Crestview
Cemetery Assn. v. Dieden (1960) 54 Cal.2d 744, 753-754 [“‘[t]he acts of the
parties under the contract afford one of the most reliable means of arriving at
their intention’â€].) “For this
reason, evidence of such conduct . . . is admissible to resolve ambiguities in the
contract’s language.†(
National
Medical
Center
v. Genentech, Inc. (2008)
43 Cal.4th 375, 393.) Here Sills,
Haggis’s auditor, testified without contradiction that in the statements Persik
issued before his audit Persik reported “100 percent of the revenue†from the
film’s distributors as gross receipts. It
was only after Sills’s audit reported that a number of accounting errors by
Persik had reduced the participation payments owed to Haggis by more than
$1 million that Persik adopted its new interpretations of the contract. As the trial court observed, “defendants,
after using a different definition for months and years of accounting to plaintiffs,
simply changed their definitions to increase their own profits.â€
Persik does not deny that its contract with Haggis is
susceptible to the interpretation that we have given it, i.e. that Haggis’s
participation payments are based on all of the film’s gross revenue not
just the gross revenue remaining after deducting Apollo’s share. Persik argues, however, that such an
interpretation leads to an “‘extraordinary, harsh, unjust, [and] inequitable’â€
result and therefore must be rejected. (Emphasis
omitted.) (See Richeson v. Helal (2007) 158 Cal.App.4th 268, 277.) The result is unjust, Persik maintains,
because under our interpretation of the contract Persik will lose $2.8 million
dollars from financing the film.
Assuming for the sake of argument that
such a loss would require a different result in this case, Persik fails to cite
any evidence in the record to support its claim that it lost $2.8 million on
the film so we are free to ignore it. (
(2003) 109 Cal.App.4th 1551, 1560.)
II. PERSIK
HAS NOT SHOWN THAT THE COURT ERRED BY CALCULATING THE CREATIVE CONTRIBUTORS’ CONTINGENT
COMPENSATION ON A CASH BASIS.
Persik argues that in calculating Haggis’s
damages the court erroneously failed to offset the third party participations
due to all third party participants as required by section 13(a)(
The record does not support that
argument. In its Statement of Decision the
court specifically found that the contracts between the plaintiffs and Persik
“require the respective profit participants in the contract to bear the participations
paid to the other profit participants, i.e., [Fraser’s] participation would be
reduced by the third party participations that had been previously paid to
[Haggis].â€
The variance in the amount of damages
Persik contends are due Haggis (accepting for sake of argument the court’s
interpretation of the contract) and the amount of damages the court awarded
stems from the court’s decision that the offsets against participations described
above should be calculated “on a ‘cash’ basis and not an accrual basis.†(This reversed an earlier ruling by the court
approving Persik’s accrual accounting.) The
court adopted the reasoning of Haggis’s expert, Sills, and rejected that of
Brown, Persik’s chief financial officer.
Sills explained that “the amounts of other participants’
participations that the plaintiffs bear are a burden on the plaintiff’s
participation and a benefit to the defendants’ revenue. Hence, unless and until defendants have paid
the obligation, there is no basis for the participant to bear that burden.†(Emphasis omitted.) Sills further explained that, “per industry
standards, if defendants pay the participations, then in the next participation
statement those amounts may be deducted; however, until they are paid there is
no way to know if the obligation will ever be paid or if the obligation is just
showing as due to further reduce the participation paid to plaintiffs.†On appeal, Persik presents no argument to the
contrary.
III. THE COURT CORRECTLY HELD
THAT ALL PAYMENTS
TO LIONS GATE AND DEJ WERE DISTRIBUTION FEES
SUBJECT TO A CAP ON DEDUCTIONS FROM GROSS
RECEIPTS.
The contract between Persik and Haggis allows Persik to
deduct “distribution fees†from gross receipts in calculating Haggis’s third
party participations but at the third breakeven point this deduction is capped
at 32.5 percent. Jon Gumpert, an expert
witness for Haggis with decades of film industry experience, testified that
distribution fees are capped “in order to protect [third party participants] so
that the combined fees don’t add up to so much that there is nothing left over
for the participant.†There is no cap
on the amount of contingent compensation that can be deducted from
gross receipts. (See discussion in
Part II, ante.)
In auditing Persik’s payments to Haggis, Sills found that
Persik had exceeded the cap on distribution fees that it could deduct from
gross receipts by over two million dollars.
The court “accept[ed] Sills’[s] analysis as credible.â€
On appeal Persik claims the money it paid to Lions Gate and
DEJ that the court found exceeded the cap on distribution fees was not really
payment of distribution fees but was actually payment of “contingent compensationâ€
not subject to the cap. (Emphasis
omitted.) The trial court disagreed and
we concur.
Gumpert testified that his review of the Lions
Gate’s contract with Persik showed that Lions Gate “did not purchase an
equity interest in the picture. All it
did was acquire a 25-year distribution license limited to North America.†Therefore, he concluded, Persik’s payments to
Lions Gate “can only be a distribution fee because [Lions Gate] is not an
owner. It made no investment in the
film. It is simply a licensee.†Gumpert reached a similar conclusion with
regard to DEJ: money paid to DEJ in excess of the cap “should be disregarded
for purposes of calculating [Haggis’s] participation.†The court found Gumpert’s testimony
“credible.â€
Persik does not challenge Gumpert’s or
Sills’s testimony. Instead, it points to
its contracts with Lions Gate and DEJ which it claims expressly distinguish
between distribution fees and shares in the film’s profits and provides that
Persik shall make both types of payments to Lions Gate and DEJ. The contract at issue here, however, is the
one between Persik and Haggis. As we
pointed out above, Persik cannot alter what it promised to pay Haggis under
their contract by entering into subsequent contracts with other parties. (See discussion at p. 9, ante.)
SUPPORT THE TRIAL COURT’S
FINDING THAT THE FIVE DEFENDANTS ARE JOINTLY AND
SEVERALLY LIABLE AS ALTER EGOS OF EACH OTHER.
The court found the six named defendants—Persik
Productions, Inc. (subsequently renamed Bob Yari Productions, Inc.), Yari Film
Group, Crash Productions, LLC, Bull’s Eye Productions, LLC, Crash Distribution,
LLC and Syndicate Films International, LLC
and severally liable to Haggis as “the alter egos of one another.â€
Alter ego liability is not limited to
cases in which the court pierces the “corporate veil.†It also applies when the defendants
constitute a “single-enterprise.†(
Cal.App.4th 486, 512) Under the single
enterprise theory alter ego liability attaches when “the court, for sufficient reason[s], has determined
that though there are two or more personalities, there is but one enterprise;
and that this enterprise has been so handled that it should respond, as a
whole, for the debts of certain component elements of it.†(Las
Palmas Associates v. Las Palmas Center Associates (1991) 235 Cal.App.3d
1220, 1249-1250.)
The
same factors apply in determining single enterprise liability as in determining
alter ego liability based on piercing the corporate veil. (Toho-Towa
Co., Ltd. v. Morgan Creek Productions, Inc. (2013) 217 Cal.App.4th 1096,
1108.) Those factors include, but are
not limited to, “‘the commingling of funds and assets of the two
entities, identical equitable ownership in the two entities, use of the same
offices and employees, disregard of corporate formalities, identical directors
and officers, and use of one as a mere shell or
at pp. 1108-1109; citations omitted.)
Our job is to determine if substantial
evidence supports the court’s findings.
Appellants’ job is to show us that the evidence is not substantial. This they have failed to do.
The court found that all six defendants
were the “puppets†of Bob Yari who owns Davand Holdings LLC which owns Persik which owned Crash Productions and Crash Distributions. At all times relevant to this case Yari had at
least a 50 percent ownership interest in Bull’s Eye Productions and either Yari
or Davand owned Syndicate. The court made
the following additional findings. None of
the six defendants had a separate command or control structure. Revenue from the film deposited into Crash
Distributions was transferred to Persik within days. Yari used Crash Distribution assets to settle
a lawsuit by Apollo against Persik in connection with a different film. All six defendants operated out of the same
business address, had no employees and their only officers were Yari and Brown. Yari charged personal expenses having nothing
to do with the film through the defendants.
Persik’s general ledger showed a number of transactions involving Yari
owned companies that had no connection to Crash but for accounting
purposes were “related to ‘Crash.’â€
In arguing against the court’s finding of
single enterprise liability Persik cites evidence showing that defendants,
while affiliated with each other, were formed at different times for different
business purposes and had different owners and officers amongst them. (The court found that defendants had only two
owners, Yari and Davand, and two officers, Yari and Brown.) There was also evidence that the defendants
adhered to “corporate formalities†and at all times kept separate funds
and bank accounts.
When determining whether substantial
evidence supports the trial court’s judgment, we do not consider whether there
is evidence from which the court could have drawn a different conclusion
but whether there is substantial evidence to support the conclusion that
the court drew. (Knapp v. AT&T Wireless Services, Inc. (2011) 195 Cal.App.4th
932, 941.) Here, Persik has cited some
evidence that tends to support the rejection of alter ego liability, but Persik
has not argued against the sufficiency of the evidence (relied upon by
plaintiffs and the trial court) that tends to support the trial court’s
imposition of alter ego liability. We therefore
must reject Persik’s argument.
The court awarded Haggis prejudgment
interest under Civil Code section 3287, subdivision (a), which states in
relevant part: “Every person who is
entitled to recover damages certain, or capable of being made certain by
calculation, and the right to recover which is vested in him upon a particular
day, is entitled to also recover interest thereon from that day[.]†The parties agree that our review of that
decision is de novo. (
(1995) 36 Cal.App.4th 376, 390-391.)
As a general rule, damages are deemed certain or capable of being
made certain within the provisions of subdivision (a) of Civil Code section
3287 “‘where there is essentially no dispute between the parties concerning the
basis of computation of damages if any are recoverable but where their dispute
centers on the issue of liability giving rise to damage.’†(Wisper Corp.
v. California Commerce Bank (1996)
49 Cal.App.4th 948, 958 (Wisper
Corp.).) The
award of prejudgment interest “is intended to make the plaintiff whole ‘for the
accrual of wealth which could have been produced during the period of
loss.’†(Ibid.) In contrast, “where
the amount of damages cannot be resolved except by verdict or judgment,
prejudgment interest is not appropriate.†(Id.
at p. 960.) This exception to the
general rule reflects the view that it is unfair to penalize a person for
failing to pay a sum that is unascertainable prior to judgment. (Comment, Interest As Damages In California
(1958) 5 UCLA L. Rev. 262, 263, fn. 6.)
Thus, it is well-established that an award of prejudgment interest is
not authorized where the amount of damage depends on a judicial determination
based upon conflicting evidence. (
p. 960.) The test developed by case law
is whether the defendant actually knew the amount owed the plaintiff or could
have computed the amount from reasonably available information. (Chesapeake
Industries, Inc. v. Togova Enterprises, Inc. (1983) 149 Cal.App.3d 901, 907.)
We see no reason why an exception to prejudgment interest should
not also apply where, as here, the amount due under a contract depends on a
judicial resolution of conflicting interpretations of the contract’s provisions
provided that the defendant’s contractual
interpretations were not frivolous or presented for the purpose of delaying
payment due under the contract. (See
630 [“[W]here delay in payment is due to vexatious conduct on the part of the
defendant, ‘it is only just that he should repair the damage that has followed
from the breach of his obligation’ although the balance due to the plaintiff is
‘in a certain sense unliquidated’â€].)
Here the issue
of liability merges with the basis of computation of damages since the essence
of the case is the proper computation of the profit participations due Haggis
under the contract. If Persik and Haggis
had a good faith dispute about how Haggis’s payments should be calculated under
the contract and their dispute could only be resolved by a judicial determination
based on conflicting interpretations of the contract terms then it would be
unfair to assess Persik with prejudgment interest just as it is unfair to
assess prejudgment interest when the
amount of damage depends on a judicial determination based upon conflicting
evidence. (Cf. Wisper Corp., supra, 49 Cal.App.4th
at p. 960.)
In this case, however,
the court found that Persik did not have a good faith dispute with Haggis over
the calculation of Haggis’s participations.
On the contrary, the court described Persik’s contractual
interpretations as “bogus.â€
The court found
that in the beginning Persik agreed with Haggis on the method for calculating
Haggis’s participations. It was only
after Haggis’s auditor found that Haggis had been underpaid by approximately $1
million that Persik “‘discovered’†that a mistake had been made in
prior statements as to the method of calculating third party participations
and that Haggis had actually been overpaid, not underpaid. The court questioned “whether this was
truly a mistake†given the initial intent of Persik as revealed by its actions
“not by the words of counsel’s arguments at trial.†Moreover, the court observed, Persik’s
conduct, “especially in changing the definitions of ‘gross receipts’ and ‘third
party participations’ after using different definitions for months and years of
accounting to plaintiffs, was designed to increase defendants’ profits and is
considered ‘creative accounting.’†This
creative accounting “was not a ‘mistake’ by defendants,†the court declared,
“but rather an afterthought of how to increase revenue, and
to plaintiffs. . . . [D]efendants’ diversion of funds deprived [p]laintiffs
of contractual benefits.†(Italics
added.) Finally, the court pointed out
that the only witness to support Persik’s interpretation of the contract was
its owner Bob Yari “who provided no evidence as to the meaning of the term
‘gross proceeds’ . . . and who was not directly involved in negotiating
agreements with either the plaintiffs or Apollo.â€
agreements for defendants stated otherwise. . . . Jan Koberlin, the person who
negotiated defendants[’] arrangements with Apollo stated otherwise. Likewise, plaintiffs’ experts, Steven Stills
and Jon Gumpert, who were, in the court’s view, experienced and credible,
stated otherwise.â€
The judgment is
affirmed. Respondents are awarded their
costs on appeal.
NOT TO BE
PUBLISHED.
ROTHSCHILD,
Acting P. J.
We concur:
CHANEY,
J. MILLER,
J.
court subsequently granted Haggis’s motion to amend the judgment to add Davand
Holdings LLC and Bob Yari as additional judgment debtors. We separately consider their appeal from
the court’s ruling. (
(Jan. 31, 2014, B243369) [nonpub. opn.].)
name="_ftn2" title="">[2] Persik also obtained
funds from DEJ Productions and
Lions Gate Films, Inc., neither of which are parties to this action.
