Opinion
B326309
11-04-2024
ROBERT KIRKMAN et al., Plaintiffs and Appellants, v. AMC FILM HOLDINGS, LLC, et al., Defendants and Respondents.
Sullivan &Triggs, Sheldon Eisenberg, Courtney Elgart, Michelle L. Covington and Nairi Shirinian for Plaintiffs and Appellants. Gibson, Dunn &Crutcher, Scott A. Edelman, Ilissa Samplin and Daniel Nowicki for Defendants and Respondents.
NOT TO BE PUBLISHED
APPEAL from orders and judgment of the Superior Court of Los Angeles County, No. BC672124 Daniel J. Buckley, Judge. Affirmed.
Sullivan &Triggs, Sheldon Eisenberg, Courtney Elgart, Michelle L. Covington and Nairi Shirinian for Plaintiffs and Appellants.
Gibson, Dunn &Crutcher, Scott A. Edelman, Ilissa Samplin and Daniel Nowicki for Defendants and Respondents.
GRIMES, J.
This is a dispute between individuals involved in making The Walking Dead television series, on the one hand (plaintiffs and appellants), and the affiliated companies that produced it (AMC) and broadcast it (AMC Networks), on the other hand (defendants and respondents). Plaintiffs contend defendants wrongfully deprived them of contingent compensation under plaintiffs' contracts with AMC. They argue they never agreed to the method AMC used to calculate their contingent compensation and that, if they were to be bound by AMC's methodology, its use would constitute a breach of the implied covenant of good faith and fair dealing because it rendered their right to contingent compensation illusory.
These individuals are Robert Kirkman, Gale Anne Hurd, David Alpert, Charles Eglee, and Glen Mazzara. For simplicity, we follow their lead in disregarding their wholly owned corporate entities involved in these proceedings.
The two defendants that produced The Walking Dead and were counterparties to the plaintiffs' contracts are AMC Network Entertainment LLC (formerly known as American Movie Classics Company, LLC), the initial counterparty, and AMC Film Holdings LLC, its successor in interest by assignment.
Defendant AMC Networks Inc.
We agree with the trial court that plaintiffs contractually agreed AMC would define the means of calculating their contingent compensation. Their New York law-governed contracts unambiguously provide that AMC's "standard" means of calculating contingent compensation would apply. Under the circumstances, this provision afforded AMC the discretion to define how to calculate contingent compensation, subject only to express limitations in the contracts and the implied covenant of good faith and fair dealing. That some of the plaintiffs had the right to further negotiate that provision did not render negotiations a condition precedent to the effectiveness of AMC's definition.
We also agree with the trial court that plaintiffs failed to raise a triable issue as to whether AMC defined its calculation methodology in bad faith. New York's implied covenant restricts the exercise of a contractual discretionary right in only limited ways-the exercise of discretion cannot be arbitrary, irrational, or malevolent for personal gain at the counterparty's expense. Plaintiffs attempt to raise a triable issue as to malevolence only, but their evidence is nothing more than speculation that is insufficient to support a finding in their favor at trial.
Further, we find the trial court properly struck plaintiffs' claim for breach of contract predicated on the theory, which the trial court correctly rejected, that AMC had no contractual right to deduct as an expense profit participation payments AMC made to third parties in calculating the contingent compensation that was due plaintiffs.
Finally, we need not review the trial court's decision to strike plaintiffs' cause of action against AMC Networks for intentional interference with contractual relations. This cause of action was predicated on plaintiffs' implied covenant cause of action, which we conclude the court correctly adjudicated in defendants' favor.
We therefore affirm.
BACKGROUND
1. Factual Background
The lead plaintiff, Robert Kirkman, is the creator of a comic book series called The Walking Dead that started in 2003. His work garnered the attention of various entertainment companies for its potential as a television series. In 2009, he signed an agreement with AMC, which we call the "Kirkman Agreement," in order to pursue that potential.
The other plaintiffs are also parties to agreements with AMC related to the production of The Walking Dead. The agreements vary, but only the details of the Kirkman Agreement are important for our purposes. This is because "most favored nation" (MFN) provisions in each of the plaintiffs' contracts entitle them to treatment, in relevant part, no less favorable than any other noncast contributor to the show, and plaintiffs view the Kirkman Agreement as most favorable to them.
The dispute centers on the Kirkman Agreement's contingent compensation terms, but some context is necessary to frame the issue. The agreement is designated a "Literary Option Purchase Agreement." It afforded AMC a time-limited option to buy the right to produce content for television based on Kirkman's comic books and characters. AMC exercised this option and elected to produce the show itself (also entitled The Walking Dead ). Notably, though AMC Networks had previously purchased and broadcast television series, no AMC affiliate had ever produced one.
Subsequent references to The Walking Dead are to the television series, not the comic book series.
The Kirkman Agreement provided for fixed payments to Kirkman according to what AMC did with its rights. For example, had AMC decided not to exercise its option, it would have had to pay Kirkman $100,000. But because it exercised the option, AMC paid Kirkman $150,000. He would also earn $25,000 for helping to develop a pilot episode, another $20,000 for helping to produce the pilot, and another $15,000 for each subsequent episode he produced. He would also earn royalties for each of the first six airings of any episode after the pilot.
The contract's contingent compensation terms potentially gave Kirkman the opportunity to earn even more. If AMC ordered a series based on Kirkman's The Walking Dead concept, he would be "entitled to contingent compensation . . . in an amount equal to 5% of 100% of the modified adjusted gross receipts [(MAGR)] derived from the [s]eries ...."
MAGR is an accounting concept used in the entertainment industry. It is a calculation of profit to a production company derived from a media property for purposes of making distributions to holders of profit participation interests- typically, contributors to the creation or production of the property. There is no universal way to calculate MAGR. It is generally a function of the fee received by the production company for licensing the property to a broadcaster, less various expenses. Where, as happened with The Walking Dead, a show is both produced and broadcast "in-house"-that is, affiliated companies produce and distribute the property-there may be no actual license fee, and it therefore must be "imputed" for purposes of calculating MAGR. The imputation of the fee, as well as the expenses charged against it, can vary widely, significantly affecting how profits are shared. Machinations around these calculations are sometimes pejoratively called "Hollywood accounting."
Because AMC produced the show, the parties agree the Kirkman Agreement's MAGR provision, in relevant part, is as follows: "MAGR shall be defined, computed, accounted for and paid in accordance with [AMC's] standard definition thereof . . ., subject to good faith negotiation (including as to distribution fee and overhead) within the usual parameters of [AMC] consistent with [Kirkman's] stature; provided, however, that (i) MAGR shall include home video/DVD and merchandising, and (ii) in no event shall MAGR be defined, computed, or paid on a basis less favorable than for any other non-cast individual participant on the [s]eries."
AMC had no "standard definition" of MAGR when the Kirkman Agreement was signed, since neither AMC nor its affiliates had ever produced a television series. Thus, after AMC decided to order and produce The Walking Dead, it set out to formulate one. AMC says its objective was to develop a market definition that could be used on future projects, though the parties disagree about whether this process was conducted properly or yielded a market definition. To help develop the definition, AMC engaged Roger Arar, an entertainment lawyer. He provided MAGR terms used by some other television studios to AMC, and AMC executives developed a MAGR definition after analyzing these.
AMC gave plaintiffs its MAGR definition in March 2011. The definition was set forth in a document entitled "Modified Adjusted Gross Receipts ('MAGR')" (the 2011 MAGR Definition), which spanned 16 pages. As delivered to Kirkman, the preamble to the 2011 MAGR Definition begins "MAGR Definition applicable to [the Kirkman Agreement] dated as of November 30, 2009 ...." It employs an imputed license fee for the primary top- line revenue number fixed at 65 percent of the cost of producing the show, up to a cap of $1.45 million per episode ($3 million if a pilot). The cap was subject to increase by 5 percent in each successive season.
Kirkman did not object to, nor attempt to negotiate, the 2011 MAGR Definition when he got it. The first time he challenged AMC about it was almost four years later, in February 2015, when his counsel took the position that the MAGR definition "had not been finalized." Kirkman only attempted to win changes to the MAGR definition in the context of prelitigation settlement discussions. And, before disavowing the definition, Kirkman took various actions consistent with accepting it. He cashed an advance he was told would be recouped against his MAGR rights as defined by AMC; received, beginning in December 2011, participation statements using that definition without objection; received notices of revisions to the MAGR definition without objection; signed amendments reaffirming the Kirkman Agreement; exercised audit rights under the 2011 MAGR Definition; and expressly requested that his MAGR definition for The Walking Dead be applied in his agreement for a new show, Fear the Walking Dead.
Plaintiff Gale Anne Hurd apparently did attempt to negotiate the 2011 MAGR Definition in or around February 2012. As evidence of this, plaintiffs direct us to an inquiry from plaintiff Charles Eglee's counsel to Arar about the status of MAGR negotiations between AMC, Hurd, "and/or" Frank Darabont (another MAGR participant not party to this litigation). Arar responded, "[t]he MAGR definition changes have not yet been resolved. When that happens, the changes will be applied to your client's definition." Whatever discussions were had, they did not appease Darabont or Hurd. Darabont sued AMC in New York state court in December 2013, and AMC proposed further MAGR revisions to counsel for Hurd the next day. She did not accept these proposals, either, though plaintiffs assert in briefing that AMC unilaterally made some improvements around this time in response to "certain participants rais[ing] strenuous objections ...."
Regardless of what changes may have been made in December 2013 pursuant to discussions with Hurd, AMC made other improvements to the 2011 MAGR Definition for plaintiffs' benefit. It changed how it treated certain tax credits "based on a concession made by AMC following negotiations with [Creative Arts Agency (CAA)] that concluded on November 7, 2013." In May 2014, AMC provided Kirkman's counsel a document showing March 2014 changes to the 2011 MAGR Definition made "as a result of good faith negotiations between AMC and other participants ...."
Finally, in 2017, AMC gave improved MAGR terms to a make-up artist working on The Walking Dead, Greg Nicotero. By this time, plaintiffs had threatened litigation, and the end of the limitations period in which to sue was fast approaching. The terms Nicotero accepted were the same terms AMC offered Hurd, which Hurd rejected, in 2013. Even though Hurd had rejected these terms, AMC had internally been accruing liability pursuant to such terms for "several years." By virtue of their MFN provisions, the improved MAGR terms Nicotero accepted inured to the benefit of all plaintiffs and applied retroactively to the start of the series.
Pursuant to the 2017 MAGR Definition, plaintiffs have received material contingent compensation payments. Had AMC not improved its 2011 MAGR Definition, plaintiffs would not have received any contingent compensation at least through 2022, 12 years after it first aired. This, despite The Walking Dead being, in plaintiffs' estimation, "the most successful series in cable television history."
2. Procedural Background
Still dissatisfied with their compensation terms after AMC implemented the 2017 MAGR Definition, plaintiffs sued AMC, AMC Networks, and various other entities in August 2017.
At the trial court's urging, the parties first litigated their core contract interpretation disputes, as framed in the plaintiffs' first amended complaint, in a bench trial. The court issued a statement of decision in July 2020. It concluded the Kirkman Agreement was unambiguous in giving AMC the right to define MAGR so long as it complied with the specific limitations contained in section 11.b. and negotiated in good faith to the extent Kirkman wanted to later seek improvements to AMC's definition. In the alternative, the trial court concluded that, even if ambiguous, the parties' course of performance showed they treated the 2011 MAGR Definition as effective and binding from the time AMC sent it to plaintiffs in March 2011.
Plaintiffs thereafter filed a second amended complaint (SAC) alleging causes of action for breach of their The Walking Dead contracts and for inducing breach of those contracts. By an April 2021 order, the trial court struck allegations of breach that were incompatible with its statement of decision. The court also sustained defendants' demurrer (i) without leave to amend as to plaintiffs' cause of action that defendants breached their contract by deducting profit participation payments to third parties from the MAGR calculation; and (ii) with leave to amend as to plaintiffs' other causes of action, including breach of the implied covenant of good faith and fair dealing.
Plaintiffs then filed a third amended complaint (TAC) asserting causes of action for (i) breach of the implied covenant of good faith and fair dealing in defining MAGR; (ii) other breaches of AMC's accounting obligations relating to MAGR not dismissed by the ruling on the SAC; and (iii) inducing breach of contract on the part of AMC Networks. Defendants' attempt to dispose of these causes of action by demurrer was unsuccessful.
After substantial discovery, AMC filed a motion for summary adjudication (MSA). In April 2022, the trial court summarily adjudicated in defendants' favor the causes of action for breach of the implied covenant and inducing breach of contract. The parties stipulated to dismissal of the remaining causes of action to allow judgment to enter. Plaintiffs then appealed.
DISCUSSION
1. Interpretation of the Kirkman Agreement a. Legal framework and standard of review
"The fundamental, neutral precept of contract interpretation is that agreements are construed in accord with the parties' intent [citation]. 'The best evidence of what parties . . . intend is what they say in their writing' [citation]." (Greenfield v. Philles Records (2002) 98 N.Y.2d 562, 569 (Greenfield).)
" '[W]hen parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms' [citations], and . . . courts should read a contract 'as a harmonious and integrated whole' to determine and give effect to its purpose and intent [citations]. Courts may not, through their interpretation of a contract, add or excise terms or distort the meaning of any particular words or phrases, thereby creating a new contract under the guise of interpreting the parties' own agreements [citations]. In that regard, a contract must be construed in a manner which gives effect to each and every part, so as not to render any provision 'meaningless or without force or effect' [citations]." (Nomura Home Equity Loan, Inc., Series 2006-FM2 v. Nomura Credit &Capital, Inc. (2017) 30 N.Y.3d 572, 581.) When interpreting an agreement, a court must not" 'giv[e] a strict and rigid meaning to general words or expressions without regard to the surrounding circumstances or the apparent purpose which the parties sought to accomplish.'" (William C. Atwater &Co. v. Panama R. Co. (1927) 246 N.Y. 519, 524.)
Only if a contract is ambiguous may a court resort to matter outside its four corners to discern its meaning. (Greenfield, supra, 98 N.Y.2d at p. 573.) "A contract is unambiguous if the language it uses has 'a definite and precise meaning, unattended by danger of misconception in the purport of the [agreement] itself, and concerning which there is no reasonable basis for a difference of opinion." (Id. at p. 569.) A contract is ambiguous if its "provisions are subject to more than one or conflicting reasonable interpretations." (Berkeley Research Group, LLC v. FTI Consulting, Inc. (N.Y.App.Div. 2018) 157 A.D.3d 486, 489; see also Angelino v. Freedus (N.Y.App.Div. 2010) 69 A.D.3d 1203, 1206 [" 'A contract is ambiguous if the language used lacks a definite and precise meaning, and there is a reasonable basis for a difference of opinion.' "].)
"Language whose meaning is otherwise plain does not become ambiguous merely because the parties urge different interpretations in the litigation." (Hunt Ltd. v. Lifschultz Fast Freight, Inc. (2d Cir. 1989) 889 F.2d 1274, 1277.)
"[A] written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms." (Greenfield, supra, 98 N.Y.2d at p. 569.)
Whether a contract is unambiguous, and the interpretation of an unambiguous contract, are issues of law for the court to resolve. (249-251 Brighton Beach Ave., LLC v. 249 Brighton Corp. (N.Y.App.Div. 2023) 217 A.D.3d 809, 812.) Thus, we independently review the trial court's determination of these issues. (See Winet v. Price (1992) 4 Cal.App.4th 1159, 1165, 1166.)
b. Analysis
i. The Kirkman Agreement unambiguously gives AMC the power to define MAGR.
We are concerned here with the following language appearing in section 11.b. of the Kirkman Agreement: "MAGR shall be defined, computed, accounted for and paid in accordance with [AMC's] standard definition thereof . . ., subject to good faith negotiation (including as to distribution fee and overhead) within the usual parameters of [AMC] consistent with [Kirkman's] stature; provided, however, that (i) MAGR shall include home video/DVD and merchandising, and (ii) in no event shall MAGR be defined, computed, or paid on a basis less favorable than for any other non-cast individual participant on the [s]eries." The provision following the "(ii)" is what we have referred to as the MFN clause and is common to all plaintiffs' agreements with AMC.
The parties agree that, at the time of the Kirkman Agreement, AMC had no "standard" definition-AMC had never before produced a show "in-house." Thus, it was necessary that a definition be prepared to give effect to the contingent compensation provision of the contract. The parties disagree about what process was necessary to accomplish this.
According to AMC, the words "MAGR shall be defined . . . in accordance with [AMC's] standard definition" mean that AMC was entitled to define MAGR. According to plaintiffs, the words "subject to good faith negotiation" mean no definition could bind Kirkman until good faith negotiations occurred. In other words, good faith negotiations were a "condition precedent" to the effectiveness of any MAGR definition. We, as the trial court did, agree with AMC.
The word "shall" is widely recognized as making the conduct to which it applies mandatory. (See, e.g., Matter of DeVera v. Elia (2018) 32 N.Y.3d 423, 435 [" 'use of "shall" . . . makes what follows mandatory' "]; see also Black's Law Dict. 1653 (11th ed. 2019) ["[h]as a duty to; more broadly, is required to" is the meaning of "shall" that "drafters typically intend and that courts typically uphold"]; Seabury Constr. Corp. v. Jeffrey Chain Corp. (2d Cir. 2002) 289 F.3d 63, 68 [New York law].) More than giving AMC the right to define MAGR, the word "shall" imposed on AMC the obligation to do so.
That the parties intended AMC would define MAGR is reinforced by their agreement to restrictions on what that definition would be and Kirkman's recourse if he was dissatisfied with it. The parties could have negotiated a complete MAGR term. They chose not to. Instead, they agreed any definition AMC imposed would be subject to a few specific protections for Kirkman. In doing so, they left AMC to decide the other terms of its "standard definition."
The first protection was that AMC's "standard definition" would be "subject to good faith negotiation . . . within the usual parameters of [AMC] consistent with [Kirkman's] stature." Thus, if Kirkman wanted revisions to AMC's definition, AMC was bound to revisit it in good faith with due consideration for the circumstances specified. This interpretation not only gives meaning to the phrase "subject to good faith negotiation" but is a valuable right. An agreement to negotiate is enforceable under New York law. (See, e.g., Goodstein Constr. Corp. v. New York (1986) 67 N.Y.2d 990, 992.) Such an agreement had particular value to Kirkman here because, without it, AMC would have had no obligation to revisit the terms of any MAGR definition it selected. Not even the implied covenant of good faith and fair dealing can impose on a party the obligation to renegotiate that which is already agreed; only an express agreement to do so will. (Gottwald v. Sebert (N.Y.App.Div. 2021) 193 A.D.3d 573, 582 [rejecting artist's claim that record company was obligated under implied covenant to renegotiate artist's initial contract based on her commercial success].)
Kirkman did not exercise this valuable right and has not asserted against AMC a cause of action for breach of its obligation to negotiate in good faith. At oral argument, plaintiffs faulted this court for not specifying in its tentative decision what Kirkman needed to do to invoke his right of good faith negotiation. That question is not before us because nothing Kirkman did resembled a proposal to negotiate in good faith. At oral argument, plaintiffs asserted Kirkman exercised his good faith negotiation rights by "objecting]" to the definition in 2015 and then suing AMC here. Neither the objection nor the filing of this lawsuit could be fairly considered a request to engage in good faith negotiation.
The other two protections are that "(i) MAGR shall include home video/DVD and merchandising, and (ii) in no event shall MAGR be defined . . . on a basis less favorable [for Kirkman] than for any other non-cast individual participant on the [s]eries [(i.e., the MFN)]." The inclusion of these, but not other specific terms, is reasonably interpreted to mean Kirkman would accept whatever other "standard" terms AMC dictated, subject to whatever concessions he could later obtain through good faith negotiation, if any. Indeed, Kirkman's own counsel testified the MFN was a "safety net," which allowed them to advise Kirkman to sign without first seeing AMC's MAGR definition. It is unnecessary for us to consider this extrinsic evidence since the contract is not ambiguous, but we note it nonetheless because it shows Kirkman and his counsel knew exactly what the agreement said and believed Kirkman was adequately protected.
According to plaintiffs, however, these express limitations are merely pre-agreed deal points the parties would add to in further negotiations, not an expression of the universe of limits to which Kirkman was contractually entitled. For this proposition, plaintiffs rely on the last antecedent rule, which they describe as follows:" 'Relative or qualifying words or clauses . . . are to be applied to words or phrases immediately preceding, and are not to be construed as extending to others more remote, unless the intent clearly indicates otherwise [citation].'" (Quoting Duane Reade, Inc. v. Cardtronics, LP (N.Y.App.Div. 2008) 54 A.D.3d 137, 141.) Here, the reference to "good faith negotiation" immediately precedes the clause that begins "provided, however" and contains the two express limitations.
However, as defendants aptly note, the two clauses are separated by a semicolon. We agree with defendants that the use of the semicolon indicates the clause that begins "provided, however" was intended to qualify the entirety of the clause preceding it. "According to well-established grammatical rules a semi-colon is a point only used to separate parts of a sentence more distinctly than a comma." (Lambert v. People (1879) 76 N.Y. 220, 225.)
But we need not rely on grammatical rules alone to confirm what follows the semicolon modifies AMC's right to define MAGR and not just the contours of prospective good faith negotiations. Plaintiffs concede they are, by virtue of the MFN, "automatically"-i.e., without negotiation-entitled to the best MAGR definition afforded any noncast member. This can only be true if the MFN, which follows the semicolon and words "provided, however," qualify AMC's right established before the semicolon to define MAGR, not just the parties' negotiations about MAGR.
1. Plaintiffs' "subject to good faith negotiation" arguments fail.
Plaintiffs contend the phrase "subject to good faith negotiation" in section 11.b. imposes a condition precedent to an agreed definition of MAGR. Plaintiffs' contention is not supported by the text of the agreement or New York law. Moreover, it is not a reasonable interpretation because it would render the agreement an unenforceable agreement to agree.
a. The text of the Kirkman Agreement does not support plaintiffs' interpretation.
According to plaintiffs, "[a] contract provision starting with the phrase 'subject to' creates a condition precedent." (Italics added.) This is an incorrect statement of the law. It also does not help plaintiffs on the facts.
As an initial matter, the provision at issue does not start with the phrase "subject to." It starts "MAGR shall be defined, computed, accounted for and paid in accordance with [AMC's] standard definition thereof ...."
More importantly, regardless of where the words "subject to" appear in a provision, their meaning must be interpreted in the broader context of the provision and the agreement as a whole. (See William C. Atwater &Co. v. Panama R. Co., supra, 246 N.Y. at p. 524.) Moreover, courts applying New York law "are reluctant to interpret a contractual clause as a condition precedent in the absence of . . . unmistakable conditional language." (VXI Lux Holdco S.A.R.L. v. SIC Holdings, LLC (N.Y.App.Div. 2019) 171 A.D.3d 189, 195.)
The phrase "subject to" is not "unmistakable conditional language" and therefore does not create a condition precedent to the effectiveness of AMC's MAGR definition." '[S]ubject to' is not a legal term with one set meaning." (Parmenter v. Prudential Ins. Co. of Am. (1st Cir. 2024) 93 F.4th 13, 22.) While it can be used to express a condition, it can also be used to express a limitation, qualification, restriction, subjection, or subordination. (See, e.g., McCarter v. Crawford (1927) 245 N.Y. 43, 45, 46 [agreement to take property" '[s]ubject to such a state of facts as an accurate survey would show'" meant buyer took property "subordinated to these facts"]; Guaranty Trust Co. v. Lewis (1939) 279 N.Y. 396, 402 ["subject to" language in trust created a limitation on trustee's power of sale, not a condition]; Bacon v. Grossmann (N.Y.App.Div. 1902) 71 A.D. 575, 577 [rights under agreement made "subject to" earlier agreement limited by terms of earlier agreement]; Vassell v. Reliance Sec. Group (S.D.N.Y. 2004) 328 F.Supp.2d 454, 460 [" 'Where an agreement is "subject to" the terms of another document, the agreement will be governed by inconsistent provisions in that other document.' "].)
In the context of the Kirkman Agreement as a whole, the words "subject to" are repeatedly used not to create a condition but to subordinate one provision to another provision, event, or other limitation. For example, Kirkman's grant of rights to AMC in section 9 of the agreement was "subject to the Reserved Rights" identified in a schedule. The duration of AMC's option was "subject to extension for force majeure events . . . ." Kirkman's entitlement to screen credits pursuant to the agreement was "[s]ubject to [Writers Guild of America] requirements, if applicable." In only one instance did the parties use "unmistakable conditional language" when employing the phrase "subject to." In section 2, entitled "CONTINGENCIES," they agreed "AMC's obligations [would be] subject to the satisfaction of [certain enumerated conditions]." The parties understood how to unmistakably create a condition. That they chose not to when addressing the definition of MAGR reinforces that they did not intend good faith negotiations to be a condition precedent to the definition of MAGR.
We also reject plaintiffs' argument that section 23, which prevents amendments without a signed writing, makes good faith negotiation a condition precedent to the effectiveness of AMC's MAGR definition. This argument is premised on the notion that any MAGR definition would constitute an amendment to the Kirkman Agreement. Not so. The plain language of the Kirkman Agreement gave AMC authority to define MAGR. Exercising authority granted under an agreement is not amending a contract; rather, it is carrying out its existing terms. (See, e.g., Whitaker v. Texaco, Inc. (N.D.Ga. 1989) 729 F.Supp. 845, 851 ["if the provision itself gives [a party] discretion, then exercising that discretion is obviously not an amendment of a provision, it is simply the exercise of a provision"].)
Finally, we disagree with plaintiffs that the Kirkman Agreement is insufficiently clear that AMC's MAGR definition would bind Kirkman in the absence of good faith negotiations. Plaintiffs note the agreement could have stated more clearly that AMC's "standard" definition would control unless and until there were further negotiations. In support, they point to the contingent compensation language in a 2013 contract with another The Walking Dead contributor, which said AMC's standard MAGR definition would govern "unless and until, and only to the extent that, any . . . changes are . . . agreed to" pursuant to good faith negotiations. That AMC used these words in a later agreement does not mean they were necessary to express the same concept in the Kirkman Agreement. "[T]hat one contract is even clearer than another does not make the other contract ambiguous." (Mehdi Ali v. Fed. Ins. Co. (2d Cir. 2013) 719 F.3d 83, 93, fn. 17.)
b. Plaintiffs' interpretation of "subject to good faith negotiation" would nullify the Kirkman Agreement.
Even if the text of the Kirkman Agreement supported it (which we do not find to be correct), to interpret the words "subject to" in section 11.b. as creating a condition precedent would render the agreement an illusory agreement to agree. We would reject such an interpretation in favor of the plain language giving AMC authority to define MAGR, which yields a fully enforceable agreement. (See Beal Sav. Bank v. Sommer (2007) 8 N.Y.3d 318, 324 [courts should construe agreements" 'so as to give full meaning and effect to the material provisions' "]; Curtis Props. Corp. v. Greif Cos. (N.Y.App.Div. 1995) 212 A.D.2d 259, 265-266 ["courts avoid an interpretation that renders a contract illusory"].)
Under New York law, a" 'mere agreement to agree, in which a material term is left for future negotiations, is unenforceable' [citations], unless 'a methodology for determining the material terms can be found within the four corners of the agreement or the agreement refers to an objective extrinsic event, condition, or standard by which the material terms may be determined' [citations]." (Total Telcom Group Corp. v. Kendal on Hudson (N.Y.App.Div. 2018) 157 A.D.3d 746, 747.) Courts do not have free license to furnish terms to parties that they did not agree among themselves. (Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher (1981) 52 N.Y.2d 105, 109.) This is especially true where, as here, the contracting parties are sophisticated and were advised by experienced counsel. (See Vermont Teddy Bear Co. v. 538 Madison Realty Co. (2004) 1 N.Y.3d 470, 475.)
Plaintiffs offer no cogent explanation of how the court could create a MAGR definition from what is contained in the Kirkman Agreement. Defendants note that, before the trial court, plaintiffs insisted on a "fair market value" definition. Plaintiffs seemingly abandon that on appeal. Plaintiffs' new theory on appeal is that section 24 supplies objective criteria for a court to fill in the missing terms. Section 24 provides "that AMC's transactions with Affiliated Companies will be on monetary terms comparable with the terms on which AMC enters into similar transactions with unrelated third party distributors for comparable programs after arms length negotiation." We do not understand how section 24 relates to MAGR. The trial court devoted 10 pages of its statement of decision to explaining why this provision did not apply to Kirkman's MAGR rights. Plaintiffs offer no argument or authority that the trial court's analysis was error. Accordingly, it is waived. (See Jameson v. Desta (2018) 5 Cal.5th 594, 608-609 [on appeal, judgments and orders are presumed correct and the burden lies on the appellant to demonstrate error]; Reyes v. Kosha (1998) 65 Cal.App.4th 451, 466, fn. 6 [even when review is de novo, "it is limited to issues which have been adequately raised and supported in plaintiffs' brief'].)
Plaintiffs then cite five cases they contend gave the trial court authority to supply the definition of MAGR in the absence of a negotiated definition. These cases are of no help to plaintiffs. The first is Catlin v. Manilow (N.Y.App.Div. 1991) 170 A.D.2d 357. In that case, the plaintiff sued on the defendant's alleged promise to pay "reasonable compensation" for a script. (Ibid.) The court found the term "reasonable" meant "fair market value"-an objective standard by which a court could determine a dollar amount. (Ibid.) Here, there was no promise of a "reasonable" MAGR definition in the Kirkman Agreement. Instead, AMC promised only to use a definition that represented its "standard."
The next is Penguin Group (USA) Inc. v. Steinbeck (S.D.N.Y. Mar. 31, 2009, No. 06 CV 2438 (GBD)) 2009 U.S.Dist. Lexis 27446.) That case did not concern a court's authority to fix a price term. Instead, the issue was whether the defendant had discharged its duty to negotiate in good faith over a price term under circumstances where the contract required it to. (Id. at p. *6.) Plaintiffs here assert no breach of AMC's obligation to negotiate in good faith over the definition of MAGR.
The next is De Laurentiis v. Cinematografica de las Americas, S. A. (1961) 9 N.Y.2d 503, a dispute between a film distribution company and a producer over a movie that was never made. While the court did, as plaintiffs recite, recognize the contract between the two left certain matters for future negotiation, what it found enforceable were provisions to "consult at reasonable times" and" 'make every effort in good faith'" to see the project through to fruition. (Id. at pp. 509-510.) Nowhere did the court condone subjecting parties to terms not agreed. Again, even though section 11.b. of the Kirkman Agreement, like the agreement in De Laurentiis, contains a good faith negotiation provision, plaintiffs do not claim AMC breached it.
The next is Lee v. Marvel Enterprises, Inc. (S.D.N.Y. 2005) 386 F.Supp.2d 235. Like this case, Lee involved an artist's claimed rights to participate in profits from a company's exploitation of his work. But unlike this case, the parties defined those rights in their agreement. While they later disputed what they meant by their definition, the trial court was able to interpret it, primarily by elucidating the terms "profits" and "ancillary rights" (id. at pp. 245-246), leaving only questions of fact about the application of that definition to profits the plaintiff claimed. In doing so, the court performed the basic judicial function of interpreting the meaning of a contract based on the terms the parties agreed. It did not do what plaintiffs asked the trial court to do here-supply a term the parties never contemplated the court providing.
Finally, Salerno v. Leica, Inc. (N.Y.App.Div. 1999) 258 A.D.2d 896 is a two-paragraph memorandum opinion with little in the way of facts or analysis. Whatever proposition it may support, it does not say what plaintiffs cite it for: that a promise to pay "severance in an unspecified amount" was sufficiently definite to be enforceable. To the contrary, an objective measure of the amount was specified:" 'a severance package commensurate with [the plaintiff's] level of contribution and position in [the defendant's] organization.'" (Ibid., first brackets added.) This was not merely a promise to pay some severance; it was a promise to pay according to standards that, while vague, would provide a framework for setting a severance amount. Plaintiffs do not argue they were deprived of a MAGR definition discernable from the face of the Kirkman Agreement. Rather, they argue they were deprived of a definition that might have resulted from negotiations that never happened.
On reply, plaintiffs argue for the first time that section 11.b. of the Kirkman Agreement contains the objective measure of how MAGR should be defined. We need not consider this tardy argument (see Murray &Murray v. Raissi Real Estate Development, LLC (2015) 233 Cal.App.4th 379, 388-389) but do because it is easily dispatched. The criteria plaintiffs call "objective" include the purported requirement of additional negotiation, i.e., some exploration of, and agreement to, additional, unspecified terms, with no means of assessing how that negotiation would resolve. A promise to negotiate terms to be negotiated is too indefinite to be enforced as a contract to deal. (Yan's Video, Inc. v. Hong Kong TV Video Programs, Inc. (N.Y.App.Div. 1987) 133 A.D.2d 575, 578 [promise "to 'negotiate in good faith to renew this agreement for an additional year upon terms and conditions to be negotiated' does not constitute anything more than [an unenforceable] 'agreement to agree' "].) Plaintiffs cite no authority to the contrary.
In B. Lewis Prods. v. Angelou (S.D.N.Y. Apr. 26, 2005, No. 01 Civ. 0530 (MBM)) 2005 U.S.Dist. Lexis 9032, the court concluded a term requiring one party to contribute" 'all the capital necessary'" was "arguably . . . sufficiently definite for enforcement" because the amount of capital necessary for the venture was reasonably calculable. (See id. at pp. *20, *21.) B. Lewis actually cuts against plaintiffs insofar as it holds that "a compensation clause is enforceable only if payment can be determined from the agreement without any 'further expression by the parties.'" (Id. at p. *19.)
In Kenneth D. Laub &Co. v. Bear Stearns Cos. (N.Y.App.Div. 1999) 262 A.D.2d 36, 37, the plaintiff alleged the parties agreed to compensation in accordance with "customary rates for the industry in general." The court found this sufficiently objective to allege the existence of a contract at the motion to dismiss stage. (Ibid.) Here, there is only an agreement for AMC to employ its own "standard" definition.
In Cobble Hill Nursing Home, Inc. v. Henry &Warren Corp. (1989) 74 N.Y.2d 475, the price term in a contract for the sale of a nursing home was sufficiently definite because it called for the price to be set by a government agency by reference to applicable laws and regulations. (Id. at p. 480.) The appellate court found an enforceable contract to sell the property at a price fixed by the government agency in its discretion. (Id. at p. 484.) This mechanism for determination-which the agency successfully implemented by setting a transfer price-did not require further negotiation by the parties (or any price determination by the court at all).
Finally, Metro-Goldwyn-Mayer, Inc. v. Scheider (1976) 40 N.Y.2d 1069, 1070 did not involve an unspecified dollar term but rather an unspecified date for performance. "This term was supplied by a finding of the trial court based on proof of established custom and practice in the industry, of which both parties were found to be aware, set in the context of the other understandings reached by them." (Ibid.) But section 11.b. says MAGR "shall" be defined by AMC, not by any custom and practice in the entertainment industry. And in any event, while the concept of MAGR may be well understood, the record shows there is no one customary way to calculate it.
ii. An interpretation giving AMC the right to define MAGR is reasonable.
Plaintiffs argue an interpretation giving AMC the unilateral right to fix MAGR is not reasonable, and thus contrary to the rule that contract language be read reasonably. (Citing Currier, McCabe &Assocs. v. Maher (N.Y.App.Div. 2010) 75 A.D.3d 889, 892.) We again disagree. Provisions giving one party unilateral authority to fix a material term like price are enforceable under New York law. The decision of the Second Circuit Court of Appeals in Arbitron, Inc. v. Tralyn Broadcasting, Inc. (2d Cir. 2004) 400 F.3d 130 (Arbitron) is instructive.
Arbitron involved an agreement between a radio station and Arbitron, a listener demographics data provider, for Arbitron to license to the radio station copyrighted information about listeners within its broadcast area. (Arbitron, supra, 400 F.3d at p. 131.) The agreement was governed by New York law. It fixed a monthly license fee for the single radio station to use the data, but provided that, in the event the station came under common ownership with other nearby stations-to whom the data would also have value-Arbitron "reserve[d] the right to redetermine the rate to be charged." (Id. at p. 132.) After the station was acquired by a company that owned four others, Arbitron relied on this escalation clause to unilaterally set a new monthly license fee. (Id. at p. 135.) The station refused to pay. In the ensuing litigation, the station took the position that the escalation clause was unenforceable because it contained no objective criteria by which Arbitron could set a new rate. The district court agreed but the Second Circuit reversed. It explained the parties had agreed to an objective mechanism for redetermining the price: whatever Arbitron decided. "The intent of the parties is manifest in the language of the agreement. Both Arbitron and [the station] explicitly agreed that Arbitron was authorized to adjust the license fee in the event [the station came under common ownership with other stations]." (Id. at p. 137.) Subject to the implied duty of fair dealing, Arbitron had unfettered authority to redetermine the license fee. (Id. at p. 139.)
iii. The trial court did not err in referring to parol evidence to confirm its interpretation of the Kirkman Agreement.
Plaintiffs argue the trial court erroneously considered testimony of defendants' experts after construing the Kirkman Agreement as "unambiguous." The trial court addressed this evidence only to "confirm []" its plain language interpretation, not to rewrite or vary the terms of the Kirkman Agreement. Courts commonly address alternative arguments, even when that is unnecessary due to the principal grounds for decision. (See, e.g., Ambrose v. City of White Plains (S.D.N.Y. Apr. 2, 2018, No. 10-CV-4946 (CS)) 2018 U.S.Dist. Lexis 56309 at p. *38 ["Because [the clause] is unambiguous, I should not look [to] extrinsic evidence. [Citation.] If I did, however, the interpretation above would be confirmed by the clause's negotiating history."]; Coast Fed. Bank, FSB v. United States (Fed. Cir. 2003) 323 F.3d 1035, 1040 ["Although we need not consider the extrinsic evidence to interpret this unambiguous Agreement, we note that much of it is consistent with the Agreement's plain meaning."].)
The case plaintiffs rely on to show error, W.W.W. Associates v. Giancontieri (1990) 77 N.Y.2d 157, is inapposite. There, the court found the trial court erred when it referred to extrinsic evidence "to create an ambiguity in the agreement." (Id. at p. 163.) This violated New York's parol evidence rule: "Evidence outside the four corners of [a clear, complete] document as to what was really intended but unstated or misstated is generally inadmissible to add to or vary the writing" (id. at p. 162);" 'extrinsic and parol evidence is not admissible to create an ambiguity in a written agreement which is complete and clear and unambiguous upon its face'" (id. at p. 163).
The trial court here did not use witness testimony for any of these prohibited purposes. The Kirkman Agreement is reasonably susceptible only to the interpretation the trial court gave it without reference to parol evidence. The court's confirmation of that conclusion based on witness testimony changes nothing about the clarity of the parties' writing, and we reach the same conclusion the trial court did without reliance on parol evidence.
c. Even if the agreement were ambiguous, we would find no error in the trial court's construction based on course of performance evidence.
Having concluded the Kirkman Agreement unambiguously gives AMC authority to define MAGR, we need not consider the trial court's alternative conclusion that, even if ambiguous, the parties' course of performance shows they agreed AMC had the right to define MAGR.
To be clear, the Kirkman Agreement is not ambiguous. For the reasons already stated, plaintiffs' proposed interpretation of the good faith negotiation provision as a condition precedent is not reasonable. (See Berkeley Research Group, LLC v. FTI Consulting, Inc., supra, 157 A.D.3d at p. 489 [ambiguity arises only where there exist multiple "reasonable" interpretations]; Readco, Inc. v. Marine Midland Bank (2d Cir. 1996) 81 F.3d 295, 299 ["no ambiguity exists where the alternative construction would be unreasonable"].)
However, in the spirit of the immediately preceding discussion, we would affirm the trial court's alternative analysis. There is substantial evidence-including Kirkman's exercise of rights under the 2011 MAGR Definition and receipt of statements calculating his contingent compensation based on that definition without objection-that the parties agreed AMC would define MAGR.
2. Summary Adjudication of the Implied Covenant Cause of Action
a. Legal framework and standard of review
A defendant may move for summary adjudication on a cause of action on the basis that the cause of action has no merit. (Code Civ. Proc., § 437c, subd. (f)(1).) In so moving, the defendant bears the initial burden of showing that one or more elements of the cause of action cannot be established or that it is subject to a complete defense. (Id., subd. (p)(2).)
Once the moving defendant has carried this initial burden, the burden shifts to the plaintiff to show, by production of specific facts, a triable issue of material fact with respect to the cause of action. (Code Civ. Proc., § 437c, subd. (p)(2).) The trial court must consider all of the evidence and the reasonable inferences from it in the light most favorable to the nonmoving party. (Id., subd. (c); Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843 (Aguilar).) The defendant is entitled to summary adjudication on the cause of action only if "there is no triable issue of material fact and the issues raised by the pleadings may be decided as a matter of law." (Woodworth v. Loma Linda University Medical Center (2023) 93 Cal.App.5th 1038, 1053 (Woodworth).) A triable issue of material fact exists only if "the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof." (Aguilar, at p. 850.)
Our Supreme Court has made clear that the purpose of the 1992 and 1993 amendments to the summary judgment statute was" 'to liberalize the granting of [summary judgment and adjudication] motions.'" (Perry v. Bakewell Hawthorne, LLC (2017) 2 Cal.5th 536, 542 .) It is no longer called a "disfavored" remedy. (Ibid.) "Summary [adjudication] is now seen as 'a particularly suitable means to test the sufficiency' of the plaintiff's or defendant's case." (Ibid.)
"We review summary adjudication orders de novo and apply the same legal standard as the trial court." (Woodworth, supra, 93 Cal.App.5th at p. 1053.)
b. Analysis
The trial court summarily adjudicated plaintiffs' implied covenant cause of action in defendants' favor. The basis for its decision was that plaintiffs failed to raise a triable issue that defendants acted in bad faith in defining MAGR. We agree with the trial court and affirm on that basis. Accordingly, we need not consider the alternative grounds for affirmance urged by defendants.
i. New York's implied covenant of good faith and fair dealing.
New York law implies in every contract a covenant of good faith and fair dealing. (Singh v. City of New York (2023) 40 N.Y.3d 138, 145 (Singh).) "Broadly stated, the implied covenant 'embraces a pledge that "neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract" '" (id. at pp. 145-146), and may be used to supply terms to effectuate that pledge. (See, e.g., id. at p. 146 [considering whether to imply in taxi operator license a promise by licensor to enforce license requirements against application-based ridesharing companies whose unlicensed operations devalued licenses].)
"However, the implied covenant 'is not without limits' [citation]." (Singh, supra, 40 N.Y.3d at p. 146.) A plaintiff cannot "invoke the implied covenant by simply alleging that a defendant's conduct 'drastically undermined a fundamental objective of the parties' contract' [citation]. Rather, the implied duty must arise from the contract and the promisee's reasonable expectations [citation]." (Cordero v. Transamerica Annuity Serv. Corp. (2023) 39 N.Y.3d 399, 410 (Cordero).) "Thus, the covenant cannot be used to 'imply obligations inconsistent with other terms of the contractual relationship.'" (Singh, at p. 146.)" '[A] party who asserts the existence of an implied-in-fact covenant bears a heavy burden' to 'prove not merely that it would have been better or more sensible to include such a covenant, but rather that the particular unexpressed promise sought to be enforced is in fact implicit in the agreement viewed as a whole' [citation]." (Ibid.)
Where a contract, like the Kirkman Agreement, vests a party with discretion, the implied covenant operates in a narrower way. The party may not exercise its discretion" 'arbitrarily or irrationally'" (Cordero, supra, 39 N.Y.3d at p. 409) or "malevolently, for its own gain as part of a purposeful scheme designed to deprive [their counterparty] of the benefits of the [agreement]." (Richbell Info. Servs. v. Jupiter Partners, L.P. (N.Y.App.Div. 2003) 309 A.D.2d 288, 302 (Richbell); see also Najjar Grp., LLC v. West 56th Hotel LLC (2d Cir. 2021) 850 Fed.Appx. 69, 71-72 (Najjar); In Touch Concepts v. Cellco P'ship (S.D.N.Y. 2013) 949 F.Supp.2d 447, 467 [implied covenant provides "that a contractual right affording discretion may not be exercised in bad faith-arbitrarily, irrationally, or malevolently"].) It is not enough for a plaintiff to show only that the exercise of discretion "ha[d] 'the effect of destroying or injuring [the plaintiff's] right . . . to receive the fruits' of the [a]greement." (See Najjar, at p. 72.)
The implied covenant is narrower as applied to contractual discretion because when the parties have agreed to give one of them unfettered discretion, any court-imposed limitation on that discretion is inherently at odds with the parties' agreement. (See Singh, supra, 40 N.Y.3d at p. 145 [implied covenant cannot be used to imply terms inconsistent with express terms].) As explained in Richbell, "there is clearly some tension between, on the one hand, the imposition of a good faith limitation on the exercise of a contract right and, on the other, the avoidance of using the implied covenant of good faith to create new duties that negate explicit rights under a contract." (Richbell, supra, 309 A.D.2d at p. 302.) The Richbell court found no conflict in limiting a discretionary right where the plaintiffs did not merely allege the defendant "should be precluded from exercising a contractual right" but rather that it "exercised a right malevolently, for its own gain as part of a purposeful scheme designed to deprive plaintiffs of the benefits of the [agreement and capture for themselves the value of the plaintiffs' capital contribution to a joint venture]." (Ibid.) In recognizing these allegations stated a cause of action for breach of the implied covenant, the court explained it was not "creat[ing] new duties that negate[d] [the defendant's] explicit rights under a contract, but rather, [imposing] an entirely proper duty to eschew . . . bad faith targeted malevolence in the guise of business dealings." (Ibid.)
Below, plaintiffs argued defendants exercised their right to define MAGR in a way that was irrational, arbitrary, and in "bad faith," including "intentional bad faith." The trial court found no triable issue as to any of these assertions. On appeal, plaintiffs abandon any argument defendants acted arbitrarily or irrationally. They also argue they had no obligation to show a triable issue as to malevolence, asserting the trial court erred by imposing a "scienter" requirement on their implied covenant cause of action when it found plaintiffs failed to raise a triable issue "that the MAGR definition was 'specifically and malevolently crafted to deny [plaintiffs] the benefits of their contracts.'" We disagree with plaintiffs.
As just explained, whatever broad principles underlie the implied covenant, it imposes only limited restrictions on the exercise of a contractual discretionary right. (Najjar, supra, 850 Fed.Appx. at p. 72; Cordero, supra, 39 N.Y.3d at p. 409; Richbell, supra, 309 A.D.2d at p. 302; In Touch Concepts v. Cellco P'ship, supra, 949 F.Supp.2d at p. 467; see also Ray Legal Consulting Grp. v. DiJoseph (S.D.N.Y. 2014) 37 F.Supp.3d 704, 726 [implied covenant claim dismissed where the defendant was merely" 'acting in [its] own self-interest consistent with [its] rights under [the contract]'" and there were no allegations the defendant engaged in "malevolent conduct []or a purposeful scheme designed to deprive" the plaintiff of revenue].)
Plaintiffs quote one federal district court decision as stating" '[t]he exercise of an apparently unfettered discretionary contract right breaches the implied obligation of good faith and fair dealing if it frustrates the basic purpose of the agreement and deprives plaintiffs of their right to its benefits.'" (Quoting Miller v. Great Lakes Medical Imaging, LLC (W.D.N.Y. 2021) 527 F.Supp.3d 492, 500.) We do not think this is an accurate statement of New York law. For the proposition, Miller quotes a concurring opinion in C &E 608 Fifth Ave. Holding, Inc. v. Swiss Center, Inc. (N.Y.App.Div. 2008) 54 A.D.3d 587, 588 (conc. opn. of Moskowitz, J.), which in turn quotes Hirsch v. Food Resources, Inc. (N.Y.App.Div. 2005) 24 A.D.3d 293, 296, which in turn cites Tradewinds Financial Corp. v. Repco Securities, Inc. (N.Y.App.Div. 2005) 5 A.D.3d 229, 230-231, which in turn cites Richbell, supra, 309 A.D.2d at pages 302-303 for the limited proposition that the exercise of contractual discretion is subject to the implied covenant. Of these cases, only Richbell contains any meaningful analysis of how the implied covenant limits an exercise of discretion, and it requires more than a mere disappointment of the plaintiff's expectations by the defendant's discretionary actions. It requires malevolent, purposeful conduct. (Richbell, at pp. 302-303.)
In a similar vein, plaintiffs cited at oral argument Cordero, supra, 39 N.Y.3d 399 for the proposition that the implied covenant "requires the parties to perform under the contract 'in a reasonable way,'" and "[i]n discerning what is 'reasonable[]' [courts] look[] to what the parties would have expected under the contract: [courts] will infer that contracts 'include any promises which a reasonable person in the position of the promisee would be justified in understanding were included' at the time the contract was made' [citations] . . . ." (Id. at p. 409.) Counsel then framed the issue on appeal as whether, in defining MAGR, "AMC act[ed] in a reasonable way consistent with [Kirkman's] reasonable expectations." Notably, we are cited no case that says an unreasonable exercise of a discretionary right, without more, is a breach of the implied covenant.
We reject as a matter of law plaintiffs' arguments that they can create a triable issue of fact by showing AMC exercised its discretion in a way that disappointed Kirkman's expectations without any evidence that AMC engaged in malevolent, arbitrary or irrational behavior. Because caselaw requires at least one of these things for a discretionary act to breach the implied covenant (Najjar, supra, 850 Fed.Appx. at p. 72), one who grants his counterparty a discretionary right can only reasonably expect the counterparty's exercise of that right will not be tainted by any of them. (Cf. Cordero, supra, 39 N.Y.3d at p. 410 [it is not enough for a plaintiff to allege "that a defendant's conduct 'drastically undermined a fundamental objective of the parties' contract' [citation]. Rather, the implied duty must arise from the contract and the promisee's reasonable expectations [citation]." (italics added)].)
Plaintiffs' authorities cited in support of their proposition that scienter is irrelevant to their cause of action do not help them. Though plaintiffs do not say exactly what they mean by "scienter" (see CMNY Capital, L.P. v. Deloitte &Touche (S.D.N.Y. 1993) 821 F.Supp. 152, 156 [noting "[s]cienter is a flexible standard"]), New York courts recognize scienter is, broadly, an actual intent to deceive, manipulate, or defraud. (See, e.g., Temo Realty LLC v. Herrera (N.Y.Sup.Ct. 2023) 82 Misc.3d 299, 303; Zutty v. Rye Select Broad Mkt. Prime Fund, L.P. (N.Y.Sup.Ct. 2023) 33 Misc.3d 1226(A), 1226A.)
Plaintiffs cite Carvel Corp. v. Diversified Management Group, Inc. (2d Cir. 1991) 930 F.2d 228, 230-231 (Carvel) for the proposition that "New York law . . . recognizes that subjective scienter is not required for an implied covenant claim." Carvel does not say this and does not support this. Indeed, it is to the contrary. The only substantive aspect of the implied covenant the Caravel court described was the covenant's" 'implied undertaking on the part of each party that he will not intentionally and purposely do anything to prevent the other party from carrying out the agreement on his part.'" (Id. at p. 230, italics added; cf. Meda AB v. 3M Co. (S.D.N.Y. 2013) 969 F.Supp.2d 360, 384 [describing Carvel as entailing intentional frustration of the plaintiff's contractual rights].)
We also reject plaintiffs' description of Carvel for another reason: New York's highest court has since clarified that a plaintiff cannot "invoke the implied covenant by simply alleging that a defendant's conduct 'drastically undermined a fundamental objective of the parties' contract' [citation]." (Cordero, supra, 39 N.Y.3d at p. 410.) Rather, the implied duty must arise from the contract and the promisee's reasonable expectations. (Ibid.) And again, where the issue is how a defendant exercised its contractual discretion, the only implied promises that will constrain it are the promises not to exercise that discretion arbitrarily, irrationally, or malevolently. (Najjar, supra, 850 Fed.Appx. at p. 72.)
Plaintiffs simply ignore that courts applying New York law routinely refer to an intent requirement when discussing the implied covenant of good faith and fair dealing. Indeed, the relevance of a party's mental state to showing a breach is implicit in its name. The opposite of "good faith" is "bad faith," which "connotes a dishonest purpose." (Kalisch-Jarcho, Inc. v. New York (1983) 58 N.Y.2d 377, 385, fn. 5.)
See, e.g., Pernet v. Peabody Engineering Corp. (N.Y.App.Div. 1964) 20 A.D.2d 781, 782 (liability for breach of the implied covenant may arise where harm is caused "by defendant with intent to deprive plaintiff of its rights under the agreements to which defendant was a party; or, if the same was [caused] by conduct of the defendant in such reckless or neglectful disregard of plaintiff's contract rights as to justify an inference of bad faith"); Wallace v. Merrill Lynch Capital Servs., Inc. (N.Y.Sup.Ct. 2005) 10 Misc.3d 1062(A) ("Whether Merrill Lynch acted with an intent sufficient to justify liability for breach of the implied covenant is a question of fact that cannot be resolved on a motion to dismiss"); Schroeder v. Capital One Fin. Corp. (E.D.N.Y. 2009) 665 F.Supp.2d 219, 226 ("A cause of action for breach of an implied warranty of good faith and fair dealing requires the pleading of intent by the breaching party to deprive the injured party of his rights under the contract.").
Thus, the trial court's imposition of a requirement that plaintiffs raise a triable issue as to whether AMC "specifically and malevolently crafted [its MAGR definition] to deny [plaintiffs] the benefit of their contracts" was not an error but a direct application of New York law.
ii. Plaintiffs failed to raise a triable issue on their implied covenant claim.
Plaintiffs do not contend the trial court erred in shifting the burden of production to them under Code of Civil Procedure section 437c, subdivision (p)(2) to show a triable issue as to defendants' good faith. Rather, they argue there were factual disputes about the evidence on which defendants relied to meet their initial burden.
In their motion, defendants had the burden to show plaintiffs' implied covenant cause of action cannot be established. (Code Civ. Proc., § 437c, subds. (f)(1), (p)(2).) "[T]he pleadings always define the issues" that an MSA must address. (Hejmadi v. AMFAC, Inc. (1988) 202 Cal.App.3d 525, 536.)" 'Accordingly, the burden of a defendant moving for summary [adjudication] only requires that he or she negate the theories of liability as alleged in the complaint; that is, a moving party need not refute liability on some theoretical possibility not included in the pleadings.'" (White v. Smule, Inc. (2022) 75 Cal.App.5th 346, 354.) For the reasons set forth above, for purposes of plaintiffs' implied covenant cause of action, this required defendants to negate the theory that defendants malevolently and purposefully defined MAGR "for [their] own gain as part of a purposeful scheme designed to deprive [plaintiffs] of the benefits of the[ir] [agreements]." (Richbell, supra, 309 A.D.2d at p. 302.)
Defendants met this burden primarily through declaration testimony from Marci Wiseman, an executive involved in creating AMC's MAGR definition. She denied" 'AMC set out to ensure that it would never have to meaningfully share' The Walking Dead MAGR with profit participants by 'reverse engineering]' and 'knowingly craft[ing] a MAGR definition that guaranteed that AMC would retain for itself the vast bulk of the profits generated by' the show." She denied AMC" 'crafted an imputed license fee that would ensure [defendants] could keep [ The Walking Dead's] profits to [themselves]." She further denied she or any of her colleagues "calculated different MAGR scenarios before the [2011 MAGR Definition] was finalized to make sure [they] selected a low number that would not result in any contingent compensation payments to participants." Such self-serving statements can suffice to satisfy defendants' initial burden on summary judgment, and, if uncontroverted, their ultimate burden. (See Golden W. Baseball Co. v. Talley (1991) 232 Cal.App.3d 1294, 1306.)
In addition to denying any malintent in defining MAGR, Wiseman further sought to affirmatively explain what AMC's intent was: to create a "standard MAGR definition" AMC could use for The Walking Dead and future deals "that was in line with [that of] similarly situated companies in the television and distribution marketplace." AMC relied on advice of outside counsel (Arar) concerning imputed license fees that other cable channels used to define MAGR and chose a fee AMC thought "was consistent with the market and would align with the goal of having AMC's MAGR definition be competitive with similarly situated companies in the television marketplace."
Wiseman also offered evidence the market accepted the 2011 MAGR Definition: "Talent with experienced representation agreed to the same MAGR definition and [imputed license fee] for other AMC shows, including one-hour scripted dramas such as Halt and Catch Fire [citation]; The Terror [citation]; and Turn [citation]." Defendants submitted additional evidence of market acceptance and AMC's use of the 2011 MAGR Definition as its "standard definition" going forward. According to a declaration from trial counsel, AMC had used the definition in over 400 agreements, all of which had been produced to plaintiffs.
Plaintiffs argue on appeal that they created a triable issue in three ways. First, they offered evidence the 2011 MAGR Definition was neither market (they argue the calculation used by CBS, a broadcast network, was a better comparable than the cable networks AMC relied upon) nor reasonably designed to be market (their expert said "no television studio intending to create a market aligned MAGR definition could have depended" on the limited information Arar provided about competitors' definitions). Second, they offered evidence AMC did not use that definition as their standard definition (most of AMC's subsequent 551 profit participation agreements they reviewed defined MAGR in ways that somehow deviated from the 2011 MAGR Definition). Third, while still denying its relevance, plaintiffs point to circumstantial evidence they say shows defendants' intent to deny plaintiffs contingent compensation by how they defined MAGR. We think only this last category of evidence is determinative of the question of whether plaintiffs created a triable issue of material fact as to defendants' good faith.
A" 'material'" fact is one that "must relate to some claim or defense in issue under the pleadings, and it must also be essential to the judgment in some way." (Riverside County Community Facilities District v. Bainbridge 17 (1999) 77 Cal.App.4th 644, 653 (Riverside).) We disagree with plaintiffs that disputes about market comparability and fidelity to the 2011 MAGR Definition in later profit participation agreements raise triable issues. Rather, plaintiffs were correct when they elsewhere called these issues "tangential."
Plaintiffs are not entitled to a "market" definition of MAGR under the implied covenant of good faith and fair dealing because nothing on the face of the Kirkman Agreement supports such a right. (Darabont v. AMC Network Entertainment LLC (N.Y.App.Div. 2021) 193 A.D.3d 500, 500 ["to the extent plaintiffs' breach of covenant claim is that AMC acted in bad faith by designing a MAGR definition that did not conform to certain industry customs, this claim improperly seeks to impose obligations on AMC beyond the express terms of the parties' agreement"].)
Plaintiffs cannot claim deviations from the 2011 MAGR Definition in later deals breached the implied covenant. If the 2011 MAGR Definition was not AMC's "standard," this would breach an express term of the Kirkman Agreement, not any implied term. Plaintiffs did not allege such a breach so defendants were under no obligation to negate any allegation they did not employ the definition as their standard. Plaintiffs themselves agree that "[w]hether AMC met its obligation to provide [plaintiffs] with its 'standard' definition misses the point of an implied covenant claim . . . ."
Plaintiffs argue that, because defendants included evidence that the 2011 MAGR Definition was "market" and "standard" in their separate statement, plaintiffs could defeat defendants' motion simply by showing a triable issue as to these facts. For the proposition, plaintiffs rely on Salazar v. Thomas (2015) 236 Cal.App.4th 467, 475, footnote 6, and Nazir v. United Airlines, Inc. (2009) 178 Cal.App.4th 243, 252. Each, in turn, relies on a "practice pointer" about separate statements in The Rutter Guide. According to that practice pointer," 'the separate statement effectively concedes the materiality of whatever facts are included. Thus, if a triable issue is raised as to any of the facts in [such a] separate statement, the motion must be denied!'" (Nazir, at p. 252.) That practice pointer has since been revised to clarify that a party merely runs the risk of needlessly creating a fact issue by including immaterial facts in its separate statement. (See Weil &Brown, Cal. Practice Guide: Civil Procedure Before Trial (The Rutter Group 2022) ¶ 10:95.1.) This revision follows the decision in Pereda v. Atos Jiu Jitsu LLC (2022) 85 Cal.App.5th 759, 773, which held that simply disputing some (or even most) of the facts in a moving defendant's separate statement was insufficient, standing alone, to defeat summary judgment. In that case, notwithstanding factual disputes, the defendant was still entitled to summary judgment because there was no dispute as to the facts that were material to the issue upon which summary judgment was granted. (Ibid.) This rule is obviously correct as it gives meaning to the word "material." (See Riverside, supra, 77 Cal.App.4th at p. 653.)
We thus turn to plaintiffs' last argument, that there is circumstantial evidence they say shows defendants' intent to deny plaintiffs contingent compensation by how they defined MAGR. Plaintiffs argue it is possible to infer malintent from two circumstances. First, "AMC ran a 'MAGR Model' shortly before sending the [2011 MAGR Definition] to [plaintiffs], showing AMC's premeditated intent to ensure that the non-market MAGR [definition] they created would result only in deficits on the series." Second, that AMC (i) contrived to improve plaintiffs' MAGR definition by forcing on Nicotero in 2017 a version plaintiff Hurd previously rejected; and (ii) accrued liability for years on that definition before it was operative, show a consciousness the 2011 MAGR Definition was not enforceable under the implied covenant.
"Although a party may rely on reasonable inferences drawn from direct and circumstantial evidence to satisfy its burden on summary judgment, we do not draw inferences from thin air." (Collin v. CalPortland Co. (2014) 228 Cal.App.4th 582, 592.) Rather, the inferences must be reasonable and based on evidence. (Code Civ. Proc., § 437c, subd. (c).) Where, as here, plaintiffs bear the burden of proof at trial by a preponderance of the evidence, they may defeat summary adjudication in reliance on an inference only if a jury could conclude the inference favorable to the plaintiffs is more likely than those inferences unfavorable to the plaintiffs. (See Weil &Brown, Cal. Practice Guide: Civil Procedure Before Trial, supra, ¶ 10:260, citing Leslie G. v. Perry &Assocs. (1996) 43 Cal.App.4th 472, 487 (Leslie G.).) "[E]ven though the court may not weigh the plaintiff's evidence or inferences against the defendant['s] as though it were sitting as the trier of fact, it must nevertheless determine what any evidence or inference could show or imply to a reasonable trier of fact.... In so doing, it does not decide on any finding of its own, but simply decides what finding such a trier of fact could make for itself." (Aguilar, supra, 25 Cal.4th at p. 856, fn. omitted.)
1. MAGR model theory.
The "MAGR Model" refers to two versions of the same spreadsheet prepared in March 2011-just before AMC sent the 2011 MAGR Definition to Kirkman. The later version is a revision of the earlier version. Both calculated MAGR for The Walking Dead's first season only, subject to notations that they were based on incomplete information. Both showed first season MAGR would be negative, by about $10.2 million in the initial version and by about $18.3 million in the revised version. This negative MAGR would yield no contingent compensation to profit participants for the first season within the limited timeframe covered (series inception through March 2011).
The trial court determined no reasonable inference of bad faith could be drawn from the spreadsheets. The court reasoned that the spreadsheets were not probative of AMC's intent in formulating a MAGR definition because AMC had already shared its core imputed license fee model with CAA two months earlier, in December 2010, and had already shared the MAGR definition with Darabont a few weeks earlier, in February 2011. It is undisputed that AMC sent the 2011 MAGR Definition to Darabont before preparing the March 2011 spreadsheets, meaning that the spreadsheets did not result in any changes to the 2011 MAGR Definition.
The trial court also relied on evidence defendants submitted for the first time on reply to the effect that MAGR is typically negative in the first season. Plaintiffs contend consideration of this fact was reversible error. We find no error and agree with the trial court's analysis.
a. There was no error in considering defendants' reply evidence.
Defendants' reply evidence included an excerpt from an entertainment law treatise, written by plaintiffs' former trial counsel, and testimony from a deposition of Kirkman's transactional lawyer. The treatise said "before a television show survives four to five years and is in syndication," the show's MAGR statements "will invariably show the program in deficits and the participant earning no profits." Kirkman's transactional lawyer conceded that shows typically have negative MAGR after their first season.
Defendants submitted this evidence on reply because plaintiffs argued in their opposition that a model showing negative MAGR in the first season raised an inference of bad faith. But plaintiffs cited no evidence in their opposition to support that inference or to suggest a negative MAGR was unusual. Despite having a week between receiving defendants' reply and the hearing on the MSA, plaintiffs did not move to continue the hearing so they could obtain discovery or submit more evidence, nor did they file a request to file a surreply.
Plaintiffs addressed the new evidence for the first time at the hearing, after seeing reference to the evidence in the trial court's tentative. Counsel asserted the new evidence "can't be considered unless we have an opportunity for surreply . . .; so if [the evidence] is going to be relied on, . . . then we do need to have that opportunity to surreply." Plaintiffs made no offer of proof as to what evidence they would submit on surreply. Plaintiffs did not file or assert at the hearing any specific evidentiary objection to defendants' evidence. Plaintiffs never submitted any posthearing surreply despite knowing from the court's tentative that the court might refer to defendants' evidence in its statement of decision.
Plaintiffs cite San Diego Watercrafts, Inc. v. Wells Fargo Bank (2002) 102 Cal.App.4th 308, 316 (San Diego Watercrafts) and Severin Mobile Towing, Inc. v. JPMorgan Chase Bank, N.A. (2021) 65 Cal.App.5th 292, 308 for the proposition that the trial court erred in considering defendants' reply evidence. San Diego Watercrafts found a due process violation in a case where the moving party submitted new evidence on reply to rebut evidence the opposing party filed in opposition. (San Diego Watercrafts, at p. 313.) In Severin Mobile Towing, the court found no abuse of discretion in considering reply evidence where the opposing party made no request for leave to file a surreply. (Severin Mobile Towing, at p. 308.) We do not think either of these cases controls here.
As noted above, defendants did not introduce the reply evidence in response to evidence plaintiffs submitted but in response to plaintiffs' novel argument, unsupported by any evidence, that projected negative MAGR in the first year of the series "create[d] a strong inference of bad faith." While San Diego Watercrafts, supra, 102 Cal.App.4th 308 holds that "due process requires a party be fully advised of the issues to be addressed and given adequate notice of what facts it must rebut in order to prevail" (id. at p. 316), that principle does not apply here because it was plaintiffs, not defendants, that raised the new issue, without citing any evidence to support the newly asserted basis to infer bad faith. "A trial court has discretion to consider new evidence in reply papers supporting a summary judgment motion as long as the opposing party has notice and an opportunity to respond. [Citation.] Evidence which is used to fill gaps in the original evidence created by the opposition is particularly appropriate to consider in a reply." (Los Angeles Unified School Dist. v. Torres Construction Corp. (2020) 57 Cal.App.5th 480, 499.)
Plaintiffs had notice of defendants' reply evidence a week before the hearing. Plaintiffs did not contend in the trial court, and do not contend now, that they had any evidence, or might discover any new evidence, to supply a factual basis for the inference of bad faith. Put simply, without any facts, plaintiffs attempted to create an illusion of a disputed material fact in order to forestall summary adjudication. Having attempted to establish a factual dispute, it was incumbent on plaintiffs to present evidence to support it. (See Code Civ. Proc., § 437c, subd. (p)(2).)
The trial court could have simply ignored plaintiffs' argument as unsupported by any evidence. Instead, it acknowledged plaintiffs' argument and found it contrary to the responsive evidence defendants offered in reply. We see no due process concerns under these circumstances and thus no error in the trial court's decision to consider defendants' reply evidence.
b. Plaintiffs' MAGR model theory does not raise a triable fact issue.
The spreadsheets do nothing to support the basic theory of the TAC that "AMC acted in bad faith by waiting until after The Walking Dead was already a success to reverse engineer a MAGR definition that AMC knew was guaranteed to result in no or negligible profit participations." First, AMC had sent the 2011 MAGR Definition to Darabont before creating the spreadsheets and made no modification to that definition after preparing the spreadsheets. Second, the spreadsheets say nothing about MAGR payments beyond the first few months after the first season aired. They only show that MAGR was negative during that period, not that AMC intended to make MAGR negative in perpetuity.
In their reply brief, plaintiffs point to evidence defendants knew, in 2010, the costs of the series would "increase 'stratospherically,'" and argue this knowledge showed a year-one negative MAGR guaranteed there would never be any MAGR payments under the 2011 MAGR Definition with its caps subject only to 5 percent annual increases.
As we have already stated with regard to other evidence and arguments made for the first time on reply, we need not consider this tardy argument. In any event, the evidence plaintiffs point to requires additional inferences for which there is no evidentiary support. Plaintiffs cite to a mark-up of a draft e-mail from an AMC executive to Darabont addressing his request for "slack" on budgeting. In pushing back against that request, the AMC executive made clear there would be no agreement to increase the budget at that time. Nothing in his comments give any guidance about when the budget might grow, the expected rate of growth in the budget, or whether the executive viewed the existing budget already high relative to other basic cable television shows.
2. 2017 MAGR Definition improvements theory.
Plaintiffs' other theory for establishing intent, that bad faith can be inferred from AMC's actions to improve MAGR for plaintiffs in 2017 through their MFN rights, is similarly not well supported. Plaintiffs point to statements they describe as deceptive that AMC made in 2017 in, and relating to, obtaining Nicotero's agreement to the 2017 MAGR Definition. And they note AMC had been accruing MAGR liability based on the 2017 MAGR Definition (internally called the "Gale Anne Hurd Model") for "several years," even though plaintiff Hurd had rejected it in 2013.
All the referenced conduct occurred several years after AMC allegedly breached the implied covenant in 2011. The primary conduct-making an improved MAGR definition in 2017-occurred six years after AMC purportedly breached the implied covenant. As to the MAGR liability accruals, we are directed to no evidence of exactly when AMC began doing this. That AMC described it as pursuant to the "Gale Anne Hurd Model" implies it began after AMC offered Hurd the 2017 MAGR Definition, and Hurd rejected it, at the end of 2013. None of this conduct occurred before or any time near the time of the alleged breach.
Plaintiffs contend this conduct, which resulted in AMC paying millions of dollars to plaintiffs on account of their MAGR rights, shows AMC's "consciousness of guilt." Plaintiffs offer only speculation about AMC's motives behind action taken in 2013 and other action in 2017 from which they say it is possible to draw an inference of bad faith behind other action AMC took in 2011. (See Leslie G., supra, 43 Cal.App.4th at p. 484 ["an inference may be based on another inference only when the first inference is a reasonably probable one and, even where it is, when the building of inference upon inference results in a progressive weakening of logical sequence and leads to an ultimate conclusion which is untenable on the basis of the facts proven, the ultimate inference is legally too remote and must be rejected"], citing Savarese v. State Farm Mut. Auto. Ins. Co. (1957) 150 Cal.App.2d 518, 520.)
There are obvious reasons, having nothing to do with AMC's intent in 2011, for AMC to propose MAGR improvements to profit participants in 2013; to accrue at the proposed rate going forward; and to push to implement the improved MAGR in 2017. While we remain cognizant that the court's role on summary adjudication is not to resolve conflicting reasonable inferences, alternative explanations for the same facts may be considered to determine whether a proffered inference is reasonable. (See Leslie G., supra, 43 Cal.App.4th at pp. 483-484.)
When AMC offered the improved MAGR definition in 2013, at least Hurd and Darabont were openly disgruntled with their compensation. Darabont had just escalated the dispute in very public fashion by suing AMC in New York. Even though Kirkman had not yet expressed any objection to the 2011 MAGR Definition, AMC could not have assumed all other participants were satisfied. By offering Hurd an improved definition, it showed its cards about its willingness to improve the profitsharing opportunities, and by how much. Though just to Hurd, the offer was, as a practical matter, an offer to all noncast profit participants with MFN provisions in their agreements. Given that any one of those participants could trigger an escalation for all by obtaining what AMC had already offered (as Nicotero did in 2017), the circumstances in 2013 created a significant risk of liability for profit sharing at the 2017 MAGR Definition rate. Accruing at the "Gale Anne Hurd Model" after making the offer to Hurd therefore makes perfect sense, having nothing to do with AMC's intentions or expectations in 2011.
In 2017, the circumstances were more dire for AMC. Profit participants remained dissatisfied, more were openly threatening litigation, and a deadline for suit was looming. Though plaintiffs call the defendants' implementation of the 2017 MAGR Definition "engineering] a litigation defense," they fail to explain how it amounts to a defense. It is not a defensive, strategic "argument" that, pursuant to the 2017 MAGR Definition, AMC paid plaintiffs millions more dollars. It is a fact-and one which plaintiffs say defendants never showed "had legal significance." In the context plaintiffs describe of a looming deadline to sue, the natural inference arising from AMC's conduct relating to the 2017 MAGR Definition is that AMC was attempting to forestall litigation by giving a concession to the would-be plaintiffs. Even though attempts at compromise routinely precede litigation, plaintiffs cite no cases where such behavior gave rise to an inference of bad faith, much less bad faith in conduct occurring several years earlier.
While evidence of intent is often elusive, and circumstantial evidence undoubtedly may suffice to prove it, the inferences plaintiffs want drawn from the limited evidence they provided, marshalled after extensive discovery, are purely speculative. The evidence does not offer a basis for a reasonable factfinder to conclude those inferences show malintent by a preponderance of the evidence. We affirm the trial court's grant of the MSA.
3. AMC's Definition of MAGR Did Not Breach the Kirkman Agreement.
a. Issue and standard of review
Plaintiffs appeal dismissal of the SAC's breach of contract cause of action, which cause of action was premised on AMC's deduction of profit participation payments made to other profit participants to calculate MAGR.
The trial court held this theory of breach was foreclosed by the plain language of the Kirkman Agreement. Our review of the court's dismissal upon defendants' motion to strike is independent. (See Suarez v. City of Corona (2014) 229 Cal.App.4th 325, 332 ["Matters presenting pure questions of law, not involving resolution of disputed facts, are subject to the appellate court's independent review."].)
b. Analysis
The Kirkman Agreement provides Kirkman is entitled to "5% of 100% of [MAGR]." It further provides that MAGR shall be as defined by AMC. AMC's definition of MAGR-the 2011 MAGR Definition-provides that, in calculating MAGR, AMC shall deduct "Other Participations," defined to include "any contingent payments relating to [The Walking Dead] paid or payable by AMC and/or an AMC Affiliate . . . ." All of plaintiffs' agreements promise some percent "of 100% of MAGR" and all plaintiffs are bound by the same MAGR definition with its provision for the deduction of other MAGR payments from MAGR.
Here, as they did below, plaintiffs argue these provisions are in conflict. They assert that, when their MAGR payments are reduced by contingent payments to other profit participants, they receive less than their promised percentage of 100 percent of MAGR. They contend that section 25 of the Kirkman Agreement must control over the terms of the 2011 MAGR Definition. Section 25 of the Kirkman Agreement provides that the agreement controls over specific enumerated exhibits, not including the 2011 MAGR Definition.
Plaintiffs' own explanation of the promise to pay "5% of 100% of [MAGR]" defeats their entire argument. They say the provision means "AMC promised to pay Kirkman 5% of all the modified adjusted gross receipts as determined by the contractual formula." (Italics added.) "The contractual formula"-the 2011 MAGR Definition-included a deduction of contingent payments to other profit participants in order to arrive at the "Modified Adjusted Gross Receipts" amount in which each participant was entitled to share. Contrary to plaintiffs' assertion, there is no "total MAGR pool" from which plaintiffs share simultaneously without accounting for other profit participation payments. There is only a right to share in MAGR as defined in the Kirkman Agreement-AMC's "standard definition," which deducts other MAGR payments. As plaintiffs noted at oral argument, MAGR is not some immutable accounting concept. Rather, the MAGR pool is "whatever the contract says it is." The contract here says it is AMC's "standard definition," and that definition says it is subject for deductions for other profit participants. Plaintiffs fail to establish a contractual conflict because they fail to show where in the Kirkman Agreement there is a promise to use a MAGR definition that does not make these deductions. It only promises Kirkman a share of 100 percent of MAGR as AMC would define it.
Only on reply do plaintiffs attempt to explain the basis for their belief that the formulation "5% of 100% of [MAGR]" guarantees them a MAGR definition unreduced by contingent payments to other participants. As they offer no explanation for omitting these arguments from their opening brief, we may, and do, consider them waived. (Nolte v. Cedars-Sinai Medical Center (2015) 236 Cal.App.4th 1401, 1409-1410 [issues the plaintiffs raised for first time on reply deemed waived].)
4. We Need Not Consider Whether the Trial Court Erred in Summarily Adjudicating Plaintiffs' Cause of Action for Intentional Interference with Contractual Relations.
The final issue raised by plaintiffs' appeal is whether the trial court erred in summarily adjudicating plaintiffs' cause of action for intentional interference with contractual relations (IICR). We need not consider this issue because our affirmance on all other issues renders this one moot.
As IICR is a tort cause of action, California law applies notwithstanding the parties' choice of law in their contracts. (Fin. One Pub. Co. Ltd. v. Lehman Bros. Special Fin., Inc. (2d Cir. 2005) 414 F.3d 325, 335.) In California, the elements of IICR are: "(1) the existence of a valid contract between the plaintiff and a third party; (2) the defendant's knowledge of that contract; (3) the defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage." (Reeves v. Hanlon (2004) 33 Cal.4th 1140, 1148.)
Plaintiffs' cause of action for IICR is asserted only against AMC Networks, AMC's parent company. Plaintiffs explain it is based on their theory that AMC Networks "dictated the terms of the MAGR Exhibit and required its use by AMC Film Holdings- thereby inducing its subsidiary's breach of the implied covenant of good faith and fair dealing owed to [plaintiffs] and giving rise to liability for interference with contract." Given our affirmance of the trial court's judgment that AMC did not breach the implied covenant, plaintiffs' cause of action for IICR necessarily fails.
DISPOSITION
We affirm the trial court's orders and judgment. Costs are awarded to defendants.
WE CONCUR: STRATTON, P. J. VIRAMONTES, J.