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noting Plaintiffs' allegations that one defendant did not own any "right, title, assignment or other interest in or with respect to" the motion picture rights, that such rights were not "lawfully or properly acquired" by defendants, and that the screenplay rights were "owned by, vested in, property of, and belong to" plaintiffs
Summary of this case from Andrews v. DaughtryOpinion
99 Civ. 9623 (RWS)
October 30, 2002
DEYAN RANKO BRASHICK, ESQ., New York, NY., BARRY L. GOLDIN, ESQ., Allentown, PA, Attorney for Plaintiffs.
GREENBERG TRAURIG, New York, NY, Attorneys for Defendants Phoenix Pictures, Inc. and Morris Medavoy
OPINION
Defendants Phoenix Pictures, Inc. ("Phoenix") and Michael Medavoy ("Medavoy") have moved for summary judgment under Rule 56, Fed.R.Civ.P., dismissing the complaint of plaintiffs Briarpatch Limited L.P. ("Briarpatch") and Gerard F. Rubin ("Rubin") (collectively the "Plaintiffs"). For the reasons set forth below, the motion is granted, and the complaint dismissed.
This action is part of the maelstrom of litigation that began in 1997 when Rubin acted upon the realization that his partners, Robert Geisler ("Geisler") and John Roberdeau ("Roberdeau") since 1993 had violated their fiduciary duty to him. The following actions resulted from that realization, a list that is not represented to be complete:
Briarpatch Ltd. L.P. and Gerald F. Rubin v. Pate, 99 Civ. 9868; Geisler, et al v. Stephen V. Pate 01 Civ. 4767; Geisler, et al. v. Briarpatch Limited, L.P., et al; Richard Brick et al, 01 Civ. 8564; Briarpatch Film v. Rubin, 02 Civ. 1589; Briarpatch Ltd., et al v. Roberdeau, et al, 02 Civ. 1590; Briarpatch Ltd., et al v. DM Thomas, 02 Civ. 1591; Geisler, et al v. Briarpatch Ltd., 02 Civ. 1592, and additional litigation in the Bankruptcy Court, Dallas Division and the state courts of New York and Texas.
The instant action against defendants Geisler Roberdeau, Inc. ("GRI"), Phoenix, Medavoy and defendant Terence Malick ("Malick") involves the transactions surrounding the production of a motion picture, "The Thin Red Line."
Prior Proceedings
This action was commenced by the filing of a summons and complaint in the Supreme Court of the State of New York, County of New York on August 18, 1999 (the "Complaint"). The action was removed to this Court on September 10, 1999.
The Complaint asserted two causes of action against Phoenix and Medavoy for conspiracy to breach fiduciary duties and for aiding and abetting the breach of fiduciary duties by Geisler and Roberdeau, and their affiliates. (Compl. 1st and 2nd causes) These causes of action were also originally alleged against Malick with whom the Plaintiffs have since settled. (Stip.Dismissal Oct. 31, 2001). The Complaint alleges two additional causes of action against Phoenix alone for unjust enrichment and declaratory relief pertaining to Phoenix's production and exploitation of "The Thin Red Line." (Compl. 5th and 6th causes)
After removal, Plaintiffs' motion for remand was denied on the ground that GRI had been fraudulently joined, and, after dismissal of GRI there was complete diversity jurisdiction in this action making it unnecessary to address the question of federal jurisdiction under the Copyright Act.Briarpatch Ltd., L.P. v. Geisler Roberdeau, Inc., 2000 WL 235284 at *4 (S.D.N.Y. March 1, 2000)
Discovery has proceeded, and the instant motion was heard and marked submitted on June 19, 2002.
The Parties
Rubin is a successful businessman with a degree with a major in accounting and finance from Spring Hill College, Mobile, Alabama, and a Masters in Business Administration from New York University. He has been a corporate officer with Kaufman Holdings, Hatco, Jones Apparel, and Kenar Enterprises, Inc. Rubin has made investments in the entertainment business.
Briarpatch is a New York limited partnership formed as of January 1, 1994. Its sole limited partner was Rubin, and the general partners were Briarpatch Construction Corp., Briarpatch Film Corp., Briarpatch Releasing Corp., Briarpatch Theatre Corp. and Sansho Company, Inc. The general partners were owned and controlled by Geisler and Roberdeau. of the five named general partners of the partnership, three, (Briarpatch Film Corp. and two others) were dissolved by the New York Secretary of State prior to the partnership's January 1, 1994 effective date; the other two, (Briarpatch Releasing Corp. and Sansho Company, Inc.) were dissolved by the Secretary of State in 1995 and 1997.
Phoenix is a Delaware corporation incorporated in the fall of 1994. It is engaged in the business of development, acquisition, production, and exploitation of feature motion pictures. Among its founders, shareholders, and officers are Medavoy and Arnold Messer ("Messer"). In January of 1997, Phoenix incorporated a wholly-owned, single-purpose company, Thin Red Line Productions, Inc. ("TRL Productions") in California, to serve as the production entity for the production of "The Thin Red Line" motion picture.
Medavoy has had a career in the motion picture business as a casting director, and the head of production for United Artists. In 1978, he was one of the founders of Orion Pictures and continued with that organization until 1990. In 1990, Medavoy became chairman of TnStar Pictures, and in 1995, he started Phoenix. Medavoy has been involved with production of such motion pictures as "Rocky," "One Flew Over the Cuckoo's Nest," "Platoon," "Amadeus," "The Terminator," "Philadelphia," "The People vs. Larry Flynt," and "The Sixth Day." of the films Medavoy has been involved with, sixteen have been nominated for Best Picture Oscars and seven have won.
The Facts
The facts are derived from the parties' Local Rule 56.1 Statements and are not in dispute except as noted.
During the 1980's, Rubin met Geisler and Roberdeau and funded a stageplay they had developed. From January 1986 through September 1993, Rubin invested $6,250,000 with Geisler and Roberdeau. of the $6,250,000, $750,000 was invested by Rubin specifically with respect to the development expenses incurred by Geisler and Roberdeau to acquire the right to produce a motion picture based on the novel "The Thin Red Line" and to obtain a screenplay written by Malick. Malick spoke to Geisler, Roberdeau and Rubin with respect to Rubin's funding and Briarpatch payouts and was aware prior to 1994 that Rubin was the principal source of funding for Geisler and Roberdeau.
Prior to January 1, 1994, Rubin had not entered into any written agreements with respect to the $6,250,000 he had given to Geisler and Roberdeau during the prior seven years. In late 1993, Rubin decided that he would no longer invest any additional funds with Geisler and Roberdeau, and in March of 1994, Rubin, Geisler and Roberdeau finally entered into a written limited partnership agreement (the "Limited Partnership Agreement") drafted by counsel for Geisler and Roberdeau setting forth their respective obligations and rights regarding Rubin's prior investment in various entertainment projects. Rubin was the sole limited partner. The sole general partners were the five corporations owned by Geisler and Roberdeau, named above, including Briarpatch Film Corp. ("Briarpatch Film")
The Limited Partnership Agreement signed in March 1994, contained the following terms:
3. Decisions; Contracts
1. [General Partner] shall have the complete, exclusive and unqualified control of all aspects of the business of the Partnership, including over the development, production, presentation, distribution, exhibition, exploitation and other disposition of any Projects, directly or by any other party in all media throughout the world, in perpetuity, in accordance with such sales methods, policies, terms and conditions as [General Partner] in its sole business judgment may determine proper.
2. [General Partner] shall have the unrestricted right to sell or assign, and to pledge, mortgage or otherwise hypothecate, any Project, either in whole in part, without obtaining the consent of Rubin.
4. Rights; Copyright
1. Rubin acknowledges and agrees that, except as expressly set forth in this Agreement, he does not and shall not have any right, title or interest of any kind whatsoever in or to any Project (including, without limitation, any copyrights or any income derived therefrom)
2. The copyrights in the Projects shall be registered in the name of [General Partner], or such party as [General Partner] in its sole business judgment may determine proper.
Rubin read and understood these provisions and was represented by counsel at that time.
Rubin had the contractual right to be reimbursed for the applicable project development expenses he financed from any "development expense reimbursements" received by any general partner with respect to any project, including "The Thin Red Line." In addition, Rubin was to receive fifty percent of all "distrubutable cash" derived from any of the projects, including "The Thin Red Line."
Briarpatch Film acquired the theatrical motion picture derivation rights to the novel "The thin Red Line" through a written contract dated May 1, 1989, with the estate of James Jones and a written contract dated April 1, 1990 with Philip Yordan. Briarpatch Film owned the Malick Screenplay based upon the novel "The Thin Red Line" pursuant to the written contract dated January 1, 1998 with Malick. Evidence of Briarpatch Film's ownership of the "The Thin Red Line" motion picture rights (the "TRL Motion Picture Rights") was properly recorded in the Copyright Office in 1990.
As of March 28, 1995, Meadvoy entered into an agreement (the "1995 Representation Agreement") with Geisler, Roberdeau, Briarpatch Film, and GRI (the "Geisler/Roberdeau Parties") proving that Medavoy would be the exclusive negotiatior for a limited time to establish agreements for the production of three proposed motion pictures: "The Thin Red Line," "The English Speaker," and "The White Hotel." Medavoy loaned to GRI $100,000 in connection with the agreement. Medavoy never exercised his rights under the 1995 Representation Agreement.
Phoenix was established in the fall of 1995 and began negotiating with the Geisler/Roberdeau Parties with respect to TRL Motion Picture Rights. The Geisler/Roberdeau Parties were represented by two law firms and one theatrical agency during these negotiations.
In the February 6, 1996 edition of the "New York Observer," entitled "Follow Those Bouncing Checks! Two Producers Rack up Big Bills" — which described financial problems of Geisler/Roberdeau. The article included an interview with a named travel agent, who was now "holding the bag for thousands of dollars of airline tickets" for Geisler/Roberdeau:
he never had any problems with Mr. Geisler or Mr. Roberdeau until a wealthy patron, who he refused to identify, and whose credit card they were using to charge the airline's tickets, withdrew his support.
The article recounted the arrest of Geisler in New York for grand larceny, reporting that Geisler:
came to the door and was arrested, handcuffed and taken off to Central Booking, where he was charged with grand larceny, theft of services and issuing a bad check.
The article also featured an interview with Medavoy. The article stated:
. . . Mr. Geisler and Mr. Roberdeau are conducting [negotiations] with Hollywood movie mogul Mike Medavoy over The Thin Red Line, a project based on James Jones' last novel. Mr. Medavoy, who heads Phoenix Pictures, which is part-owned by Sony, said that he's also considering doing The White Hotel. He admitted having heard stories about the producers" checkered credit history but said he isn't concerned.
"I don't get involved or ask questions a lot about what their status is because it's immaterial to me," Mr. Medavoy said, "Some of it I've heard, but since it doesn't affect me either way, I haven't really paid attention to it."
Medavoy received the article in or about February 1996, as did Messer and other Phoenix executives. Phoenix loaned Geisler/Roberdeau another $100,000 by wire transfer to GRI on April 16, 1996.
The negotiations between the Geisler/Roberdeau Parties and Phoenix were concluded in August 1996 by an agreement dated as of April 1, 1996 (the "Phoenix TRL Acquisition Agreement"). The Phoenix TRL Acquisition Agreement terminated the 1995 Representation Agreement and granted Phoenix an option only to acquire rights from RG/JR and only "to the extent such screenplays and/or scripts are owned, controlled or developed by all or any of RG/JR." The option was only for a "quitclaim" of rights of RG/JR with respect to the Malick screenplay to "The Thin Red Line" and did not purport to grant any rights of Briarpatch, which is not a party to nor referred to by name. Pursuant to the Phoenix TRL Acquisition Agreement, Phoenix agreed to pay the $800,000 to acquire the TRL Rights, to pay $600,000 for producer fees, and to forgive repayment of the $100,000 loan Medavoy made pursuant to the 1995 Representation Agreement. The option granted to Phoenix of the TRL Motion Picture Rights pursuant to the TRL Acquisition Agreement was duly recorded with the Copyright Office on October 23, 1967 and the copyright to the Malick screenplay was duly recorded. Malik received payments from Phoenix in connection with his screenplay.
On May 20, 1997, Phoenix received a May 1997 New York Magazine article entitled "The Producers' Thin Credit Line," which cited the earlier February 1996 New York Observer article, described the recent eviction of Geisler/Roberdeau from their New York townhouse and other orders against them for non-payment of bills, and included a reference to them as "the biggest con artists" ever.
Medavoy wrote on the margin of the article that "we should send a letter get rid of these guys," and the article was distributed to Messer and other Phoenix executives and also faxed on May 21, 1997 to George Stevens, Jr. ("Stevens"), a Malick friend then employed by Phoenix Pictures as a producer of "The Thin Red Line" Project. At deposition, Medavoy admitted to being aware that Geisler and Roberdeau were "charlatans."
On June 13, 1997, Howard Justvig of Becker Ross Stan DeStefano Klein ("Justvig"), as counsel to Rubin, wrote to Geisler and Roberdeau's former attorney at Paul Weiss Rifkind Wharton Garrison to seek an accounting of Briarpatch. In October 1997, Justvig wrote a letter directly to Geisler and Roberdeau seeking an accounting from Briarpatch to Rubin including its "interest" in "The Thin Red Line" and "Sansho the bailiff." In January and August 1998, Justvig sent two other letters to Geisler and Roberdeau. Those letters also only sought an accounting from Geisler and Roberdeau. For the purposes of this motion, it is assumed that Medavoy received copies of these letters.
Principal photography for "The Thin Red Line" commenced in Australia on or about June 23, 1997. Phoenix reviewed the chain of title regarding the TRL Motion Picture Rights as did Phoenix's outside counsel, the attorneys for City National Bank, and attorneys for Fox. These reviews did not disclose any interest, or any claimed interest, by Plaintiffs in the TRL Motion Picture Rights.
A dispute arose between the Geisler/Roberdeau Parties and Phoenix regarding further personal services in connection with the development and production of "The Thin Red Line." As a result, the parties entered into an agreement dated July 18, 1997 (the "Buyout Agreement"), by which it was agreed that Geisler and Roberdeau would not render any further personal services in connection with the development and production of "The Thin Red Line" motion picture, and that Phoenix would immediately pay the balance of $430,000, plus certain expenses, owed to the Geisler/RoberdeaU Parties. Phoenix made these payments on July 18, 1997. In the Buyout Agreement, the Geisler/Roberdeau Parties also acknowledged and agreed that Phoenix had paid the acquisition price, and had acquired the TRL Motion Picture Rights as provided in the Phoenix TRL Acquisition Agreement.
Some time prior to June 13, 1997, Rubin had actual knowledge that the Geisler/Roberdeau Parties had made an agreement with Phoenix with respect to the TRL Motion Picture Rights and that Phoenix intended to produce a motion picture based upon the exercise of those intangible rights from having read newspapers, magazines, and from his son, an actor living in Los Angeles.
There were numerous press reports before June 1997 regarding Medavoy and Phoenix's involvement in "The Thin Red Line," in April 1995 in the Los Angeles Daily News, in July 1995 in Daily Variety, in July 1995 in the New York Daily News, entitled "Hollywood Buzz," and in December 1996 in The Star Ledger of Newark, New Jersey. Rubin's son was aware of Rubin's investment with Geisler and Roberdeau and that Rubin was "interested" in "The Thin Red Line." He sent to Rubin information published in Los Angeles about the development of "The Thin Red Line."
In 1997, prior to Phoenix paying all fixed consideration to the Geisler/Roberdeau Parties under the Phoenix TRL Acquisition Agreement, Phoenix was served with a New York information subpoena with restraining notice relating to a judgment secured against the Geisler/Roberdeau Parties in the sum of approximately $9,000.00. Phoenix withheld that judgment amount from sums otherwise then due and payable by Phoenix to the Geisler/Roberdeau Parties and did not release said sums until Phoenix was provided with evidence that Geisler and Roberdeau had satisfied the judgment.
In September of 1997, Phoenix was served with a temporary restraining order issued by New York State Court in an action brought by Mark Israel against Geisler/Roberdeau Parties seeking unpaid legal fees in the sum of approximately $174,000.00. Later in September 1997, Phoenix was served with an order lifting that temporary restraining order in the Israel case.
In late July 1997, also after all fixed compensation under the Phoenix TRL Acquisition Agreement had been paid, Phoenix received notice from an attorney in Texas representing Steve Pate ("Pate") who claimed to have lent Geisler and Roberdeau $700,000 and to have a security interest in the right of the Geisler/Roberdeau Parties to receive the first $685,000 which might become payable in connection with various potential motion pictures, including "The Thin Red Line." The purported Security Agreement claimed by Pate was dated February 26, 1996. Thereafter, in the fall of 1997, Phoenix was given notice by Pate's attorney that the Geisler/Roberdeau Parties had settled a lawsuit brought by Pate against them by assigning to Pate all of the contingent compensation that might be paid under the Phoenix TRL Acquisition Agreement and Phoenix acknowledged such assignment.
In September 1998, Geisler and Roberdeau's attorney, Thomas Selz of Frankfurt Garbus Klein Selz ("Selz") advised Phoenix and Medavoy in writing that Rubin was not owed any money and that Rubin's attorney acknowledged that Rubin's claims had nothing to do with Phoenix.
"The Thin Red Line" was initially released in theaters in the United States in December 1998 pursuant to an agreement between Phoenix and Twentieth Century Fox Film Corporation ("Fox") The copyright to the motion picture was recorded in December 1998. The motion picture "The Thin Red Line" received substantial critical acclaim and was nominated for seven Academy Awards, including Best Picture.
In September of 1997, Phoenix was served with a temporary restraining order issued by New York State Court in an action brought by Mark Israel against Geisler/Roberdeau Parties seeking unpaid legal fees in the sum of approximately $174,000.00. Later in September 1997, Phoenix was served with an order lifting that temporary restraining order in the Israel case.
In December 1998, Rubin, the sole limited and sole remaining partner of Briarpatch was designated the sole winding up partner and then filed a state court action on December 17, 1998 against Geisler and Roberdeau (the "State Court Action")
During the state court proceedings, Rubin obtained a temporary restraining order against Geisler/Roberdeau dated December 17, 1998. A five-day trial was held in May and June 1999, and the state court issued a thirty-one page Findings of Fact, Conclusions of Law, and Decision dated July 12, 1999 (the "State Court Decision IV) which held that Geisler/Roberdeau had breached their fiduciary duties to Briarpatch Ltd. and Rubin and committed fraud, fraudulent concealment, conversion, misappropriation, and other misconduct. The state court entered an order and judgment against Geisler and Roberdeau, which declared that "The Thin Red Line" was one of the projects of the partnership; adjudicated the rights of the partnership and Rubin in "The Thin Red Line" and other projects, and ordered Geisler and Roberdeau to immediately deliver to the partnership and Rubin "all screenplays, treatments, agreements, and other documents since they belong to and are the property of the Partnership." The order and judgment were entered by the County Clerk, New York County, on October 14, 1999.
After the State Court Decision, this action was filed against GRI, Medavoy, Phoenix and Malick.
The Summary Judgment Standard
Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Lana v. Retirement Living Pub. Co., 949 F.2d 576, 580 (2d Cir. 1991).
The Claims For Conspiracy And Aiding And Abetting Are Dismissed For Failure of Proof
The complaint has alleged that Phoenix and Medavoy conspired with Geisler and Roberdeau to defraud the Plaintiffs and aided and abetting their breach of fiduciary duty to the Plaintiffs. The proof submitted in opposition to the motion of Phoenix and Medavoy has failed to establish the elements of this claim.
Under New York law, aiding and abetting breach of fiduciary duty requires plaintiffs to prove: (1) the existence of a violation committed by the primary (as opposed to the aiding and abetting) party; (2) "knowledge" of this violation on the part of the aider and abettor; and (3) "substantial assistance" by the aider and abettor in achievement of the violation. Moll v. US Life Title Ins. Co. of New York, 654 F. Supp. 1012, 1030 (S.D.N.Y. 1987). See also Kolbeck v. LIT America, Inc., 939 F. Supp. 240, 245 (S.D.N.Y. 1996), aff'd, 152 F.3d 918 (2d Cir. 1998). Under New York State law, the courts have also sometimes discussed the tort of "participating" in a breach of fiduciary duty. The elements for this tort are similar to the tort of aiding and abetting breach of fiduciary duty. SK Sales v. Nike, Inc., 816 F.2d 843, 847-48 (2d Cir. 1987) ("[t]he claimant must prove (1) a breach by a fiduciary of obligations to another, (2) that the defendant knowingly induced or participated in the breach, and (3) that the plaintiff suffered damages as a result of the breach.")
The claim of conspiracy to breach fiduciary duty is duplicative of the aiding and abetting claim. "New York courts do not recognize an independent cause of action for civil conspiracy" and a claim can lie only if plaintiff alleges, "in addition to conspiracy, independent overt acts undertaken pursuant of that conspiracy." Securities Investors Prot. Corp. v. Stratton Oakmont, Inc., 234 B.R. 293, 331-32 (Bkrtcy. S.D.N.Y. 1999). Here, Plaintiffs' alleged overt acts in the conspiracy claim are the same alleged breaches of fiduciary that form the basis for the aiding and abetting claim. Accordingly, the first cause (conspiracy) is duplicative of the second cause (aiding and abetting). Securities Investors Prot. Corp., 243 B.R. at 332.
Facts demonstrating constructive knowledge or inquiry notice are insufficient for imposing aiding and abetting liability. Kolbeck, 939 F. Supp. at 24.
To hold all defendants to a standard of constructive knowledge and subject to a duty of inquiry would mean that all defendants, regardless of their independent obligations to the plaintiff, could be liable for inaction. That result is contrary to the law of substantial assistance and confirms that a failure to investigate, i.e., constructive knowledge, is not enough to support a claim for aiding and abetting [breach of] a fiduciary duty absent the existence of a fiduciary duty running from defendant to plaintiff.Id. 247. See also In re Centennial Textiles, Inc. v. Pennsylvania Textile, 227 B.R. 606, 612 (Bkrtcy. S.D.N.Y. 1998) ("[l]iability cannot be imposed absent actual knowledge of the tortious conduct of the primary violator")
The evidence submitted by the Plaintiffs fails to establish the actual knowledge of Phoenix and Medavoy of the fraud committed by Geisler and Roberdeau against Rubin and Briarpatch Ltd. The public records in the Copyright Office stated that Briarpatch Film owned the TRL Motion Picture Rights and Phoenix, and others, relied on those public records.
The New York Observer article does not refer to Rubin, nor to an "investor." The article only mentions "a wealthy patron," who had previously let Geisler and Roberdeau use his credit card to charge airline tickets.
In Kolbeck, the court held that a vacated order to show cause did not give actual notice to brokerage firms where an unregistered investor advisor maintained accounts that he used to steal his clients' money in breach of his fiduciary duties. 939 F. Supp. at 248. The court found that the allegations contained in the vacated order to show cause were "only allegations, not yet proved true or false in competent form" and, therefore, "knowledge of accusations" against the investment advisor was not actual knowledge by the defendant brokerage houses of any such misconduct. Id. at 247-48. Even a demand by the plaintiffs made upon the brokerage houses to stop trading and to liquidate the accounts maintained by the investment advisor did not create actual notice. Id. at 248. The defendants owed no duties to the defrauded customers because the account was held in the name of the unlicensed investment advisor. Accordingly, the plaintiffs were not customers of the defendant brokerage houses and were owed no duties by those defendants. Id.
The Plaintiffs urge that Defendants either knew or should have known two things: (1) that Rubin provided money to Geisler and Roberdeau which may have been used for the purchase of the rights to "The Thin Red Line" (see, e.g., Memo In Opp. at 32-33, and (2) that Geisler and Roberdeau may have been "totally unreliable," "conmen" or "charlatans." (See e.g., Memo in Opp. at pp. 6-14. However, these conclusions do not constitute knowledge of any fiduciary duty between Geisler and Roberdeau and Plaintiffs, nor that Geisler and Roberdeau intended to breach such a duty, as required to impose liability on defendants. See id. at pp. 19-20; Kolbeck, 939 F. Supp. at 245.
Plaintiffs urge that Malick's knowledge that Rubin was funding the project acquired at an unspecified time before 1996 be imputed to Phoenix on the basis of his payment by Phoenix for services in connection with "The Thin Red Line."
There is no evidence submitted that Malik, with whom the Plaintiffs settled, ever advised Phoenix or Medavoy of his knowledge about Rubin's involvement. Even if Malick knew that Rubin had invested money with Geisler or Roberdeau for "The Thin Red Line" and conveyed that information to Phoenix, such information leads only to the Briarpatch Limited Partnership Agreement. That Agreement does not support a finding that Phoenix or Medavoy had knowledge that there would be any breach of that relationship by the actions of Geisler and Roberdeau or Briarpatch Film.
None of the actions of Geisler and Roberdeau taken with respect to the purchase and assignment of the TRL Rights contradict the Briarpatch Partnership Agreement nor do they suggest any breach of that Agreement on their behalf. The express terms of the Limited Partnership Agreement grant the general partners, including Briarpatch Film, virtually an unfettered discretion to sell and assign on any terms any of the intellectual property in which it is assumed for purposes of this motion that Plaintiffs had a beneficial interest. Furthermore, the Limited Partnership Agreement expressly authorized any general partner to actually co-mingle income or revenues from "The Thin Red Line" with any other monies. Id. at ¶ 8 ("nothing in this agreement shall be construed . . . to prevent or preclude [Briarpatch Film] from co-mingling income derived from the [The Thin Red Line] with any other monies")
The Agreement supported the proposed transfer of the TRL Motion Picture Rights, but it also showed that Rubin himself showed extreme confidence in Geisler and Roberdeau by granting them an extraordinary amount of discretion in the ownership, financing and management of the partnership.
Plaintiffs seek to avoid the result of Briarpatch Film being the legal owner of the TRL Motion Picture Rights by claiming that Briarpatch was a "dissolved" corporation unable to transact business after March of 1993.See Memo in Opp. at p. 24.
Under applicable New York law, a corporation dissolved for failure to pay franchise taxes must wind up its affairs, and, where appropriate, distribute transfer its assets to shareholders. 172 East 122 St. Tenants Ass'n. v. Schwarz, 73 N.Y.2d 340, 349, 540 N.Y.S.2d 420 (1989). Such a corporation may even continue to function as a de facto corporation.Garzo v. Maid of the Mist Steamboat Co., 303 N.Y.516, 524, 104 N.E.2d 882, 887 (1952)
All parties involved in the transfer of the TRL Motion Picture Rights dealt with Briarpatch Film as if it was a New York corporation in good standing and deemed to be de facto corporation. Moreover, even if Briarpatch Film was considered a disbanded corporation, the TRL Motion Picture Rights would have transferred upon dissolution to the shareholders of that corporation, Geisler and Roberdeau. (See ¶ 14 findings of fact in State Court Decision, noting that Geisler and Roberdeau were the sole shareholders of the general partners); In re Ivan Boesky Sec. Litig., 825 F. Supp. 623, 636 (S.D.N.Y. 1993) ("corporate assets ultimately belong to shareholders as equity owners of the corporation"), aff'd, 36 F.3d 255 (2d Cir.). Geisler and Roberdeau were parties to all agreements regarding the transfer of the TRL Motion Picture Rights to Phoenix but not to the Briarpatch Partnership Agreement.
The Plaintiffs have relied upon Diduck v. Kaszvcki Sons Contractors, Inc., 974 F.2d 270, 283 (2d Cir. 1992) with respect to the "knowledge" element of a claim for aiding and abetting a breach of fiduciary duty. In Diduck, the court acknowledged that it was distinguishing its holding, allowing a finding of constructive knowledge, from prior precedent on the basis of the particular circumstances of the case. "Red flags were sending out signals that [trustee] was violating fiduciary" duty thus "putting [defendant] on notice." 974 F.2d at 283. The Second Circuit acknowledged that the particular "nature of the wrongdoing alleged" was relevant to assessing the knowledge requirement and distinguished its holding in Diduck from its prior decision in Terrydale Liquidating Trust v. Barnett, 611 F. Supp. 1006, 1027-31 (S.D.N.Y. 1984), aff'd, 846 F.2d 845 (2d Cir. 1988) where the court "refused to place a duty of inquiry on third parties . . . in an arms-length commercial transaction regular on its fact . . . ." Id. at 283-84.
The post-Diduck decision in Kolbeck v. Lit. America, Inc., 939 F. Supp. 240 (S.D.N.Y. 1996), aff'd, 152 F.3d 918 (2d Cir. 1998) (which actually cites to Diduck with reference to the "substantial assistance" prong) is the more direct authority. There, the district court held, and the Second Circuit upheld, the finding that New York common law "has not adopted a constructive knowledge standard for imposing aiding and abetting liability," rather both New York state and federal courts "have required actual knowledge." Id., 939 F. Supp. at 246. Unlike Diduck, the Kolbeck decision has been widely cited and followed. See, e.g., Official Committee of Unsecured Creditors v. Donaldson, Lufkin Jenrette Sec. Corp., 2002 WL 362794 (S.D.N.Y. Mar. 6, 2002); A.I.A. Holdings, S.A. v. Lehmann Bros., Inc., 2002 WL 88226 (S.D.N.Y. Jan. 23, 2002); McDaniel v. Bear Stearns Co., Inc., 196 F. Supp.2d 343, 352 (S.D.N.Y. 2002)
The Plaintiffs have also failed to establish the substantial assistance element of their claim.
"One provides substantial assistance if he `affirmatively assists, helps conceal, or by virtue of failing to act when required to do so enables it to proceed.'" Kolbeck, 939 F. Supp. at 247, quoting Diduck v. Kaszycki Sons Contractors, Inc., 974 F.2d 270, 284 (2d Cir. 1992)
Phoenix paid money to the Geisler/Roberdeau Parties pursuant to the Phoenix TRL Acquisition Agreement. The consideration paid is set forth in that document. No evidence of secret or collusive "side deals" has been submitted to create an inference that Phoenix and the Geisler/Roberdeau Parties were attempting to conceal the total consideration Phoenix paid or to allocate that consideration to any project other than "The Thin Red Line.
Phoenix did nothing to hide its acquisition of the TRL Motion Picture Rights. In October 1996, Phoenix recorded the transfer of the TRL Motion Picture Rights thus giving constructive notice to the world of Phoenix's deal with Geisler and Roberdeau. 17 U.S.C. § 205(c). As is the practice in Hollywood, Phoenix sought as much positive publicity as possible about "The Thin Red Line." Other creditors of the Geisler/Roberdeau Parties knew that Phoenix acquired the TRL Motion Picture Rights and asserted their rights against any debt Phoenix might have owed to the Geisler/Roberdeau Parties. The Plaintiffs have not established any act by Phoenix and Medavoy that substantially assisted Geisler and Roberdeau to defraud Rubin.
No Copyright Violation Has Been Established
Plaintiffs assert a state claim of unjust enrichment and request declaratory relief pertaining to Phoenix's production and exploitation of the motion picture "The Thin Red Line" on the grounds that Phoenix allegedly does not own any "right, title, assignment or other interest in or with respect to" the TRL Motion Picture Rights and that those rights were not "lawfully or properly acquired" by Phoenix. Compl. ¶¶ 130, 131, 134. This at bottom is a claim for copyright infringement, and the state law claims are preempted by the Copyright Act. See e.g., Rosciszewski v. Arete Associates, Inc., 1 F.3d 225, 232 (4th Cir. 1993);Ballas v. Tedesco, 41 F. Supp.2d 531, 536 (D.NJ 1999); Tavormina v. Evening Star Productions, Inc., 10 F. Supp.2d 729, 733-34 (S.D.Tex. 1998); Worth v. Universal Pictures, Inc., 5 F. Supp.2d 816, 821 (C.D.Cal. 1997); Dielsi v. Falk, 916 F. Supp. 985, 990-91 (C.D.Cal. 1996)
Unauthorized exploitation of intangible property violates the rights protected by the Copyright Act and are thus preempted. Boyle v. Stephens, Inc., 1998 WL 690816 at *6 (S.D.N.Y. 1998) ("an unjust enrichment claim based upon the copying of subject matter within the scope of Copyright Act is preempted"); Markogianis v. Burger King Corp., 1997 WL 167113 at *6 (S.D.N.Y. 1997) (unjust enrichment based on unauthorized use of marketing concept contained in plaintiffs "Smarten-Up" written proposal preempted by Copyright Act); American Movie Classics Co. v. Turner Entertainment Co., 922 F. Supp. 926, 934 (S.D.N.Y. 1996) (unjust enrichment claim based upon allegedly unauthorized exploitation of motion pictures preempted); Patrick v. Frances, 887 F. Supp. 481, 484 (W.D.N.Y. 1995) ("[t]he claim that unauthorized copying of plaintiff's work unjustly enriched defendants is equivalent to exclusive rights within the general scope of copyright" and is preempted); Kunycia v. Melva Realty Co., 755 F. Supp. 566, 577 (S.D.N.Y. 1990) (unjust enrichment claim based upon use of plaintiff's copyrighted work to prepare a derivative work is preempted)
A motion picture based upon a preexisting literary work, whether a novel or a screenplay, is a derivative work separately copyrightable. 17 U.S.C. § 101, 103(a). The right to produce such a motion picture based upon prior existing work is considered a motion picture derivative right. 17 U.S.C. § 106(2) Plaintiffs have alleged that they own "The Thin Red Line" motion picture derivative rights and assert that because Phoenix has produced and exploited the motion picture "The Thin Red Line" film, then Phoenix has violated or infringed the TRL Motion Picture Rights that Plaintiffs came to own. This is a classic copyright claim and asserts that Phoenix has created and exploited an unauthorized derivative work. 2 Zimmer on Copyrights § 8.09[B] at 8-142 (2002)
However, neither Briarpatch nor Rubin was the legal owner of the motion picture derivative rights to "The Thin Red Line" novel and screenplay at the time Phoenix entered into and fully performed the Phoenix TRL Acquisition Agreement, which was negotiated in 1995 and 1996. Prior to Phoenix entering into the Phoenix TRL Acquisition Agreement, Briarpatch Film was the legal owner of the TRL Motion Picture Rights, had owned those rights since 1989, and properly recorded its ownership of those rights in the United States Copyright Office.
The Supreme Court Decision awarded damages in the sum of $1,500,000 to Rubin and Briarpatch because such sum was "converted by [Geisler, Roberdeau and their affiliates] from the proceeds paid by Phoenix Pictures for `The Thin Red Line'" The first paragraph of the judgment entered upon the Supreme Court Decision declared that "as of January 1, 1994, all beneficial right, title, and interest" in and to, among others, the screenplay entitled "The Thin Red Line" "resided with" Briarpatch. Under the Copyright Act, "beneficial owners" are individuals who have given up exclusive rights to use or license the use of copyrighted assets in exchange for the right to receive future remuneration from the exploitation of the copyright involved. See Cortner v. Israel, 732 F.2d 267, 271 (2d Cir. 1984), quoting H.R. Rep. No. 1476, 94th Cong.2d Sess. 159, reprinted in 1976 U.S. Code Cong. Ad. Nes 5659, 5775.
The second paragraph of the order then conveyed to Briarpatch actual title only "insofar as defendants Geisler and Roberdeau and their affiliates may have acquired, held, or hold any right, title or interest." This conveyance of actual legal title was "effective immediately" by its terms and was a conveyance when the order was entered in the County Clerk's office of New York. Subsequent to the Supreme Court Decision, a special referee entered a further decision and order recognizing that Phoenix is "the entity now controlling" "The Thin Red Line" and that the $1,500,000 paid by Phoenix for the TRL Motion Picture Rights was "converted" by Geisler and Roberdeau.
In any case, the findings in the State Court Action are not binding upon Phoenix and Medavoy since a court's determination of law or fact can have preclusive effect in another action only against a party to the first action and those in privity with such a party. Ryan v. New York Telephone Co., 62 N.Y.2d 494, 478 N.Y.S.2d 823 (1984) For a prior decision to have preclusive effect in a new action, the party against whom preclusion is sought must have had "a fair and full opportunity to contest the decision" in the first action. See Kaufman v. Eli Lilly and Co., 65 N.Y.2d 449, 492 N.Y.S.2d 584 (1985)
The Plaintiffs have argued the provision of the Copyright Acts regarding transfer priorities. Plaintiffs' Opp. Memo at pp. 19-30. Plaintiffs, however, were never a prior transferee of legal ownership of the TRL Motion Picture Rights and there is no issue in this case of prior as against subsequent transferee of legal ownership of the TRL Motion Picture Rights, even as to the effect of the Supreme Court Decision.
Rubin, in his verified complaint in the State Court Action, swore that "Geisler, Roberdeau and their affiliates secretly assigned the rights in and to "The Thin Red Line" to Phoenix Pictures, Inc." and cannot now deny that there was such an assignment. See Bates v. Long Island Railroad Company, 997 F.2d 1028, 1037 (2d Cir.), cert. denied, 510 U.S. 992, 414 S.Ct. 550, 126 L.Ed.2d 452 (1993) ("[t]he doctrine of judicial estoppel prevents a party from asserting a factual position in a legal proceeding that is contrary to a position previously taken by him in a prior legal proceeding")
Plaintiffs admit that their fifth cause of action for unjust enrichment is dependent upon a finding that the rights to "The Thin Red Line" screenplay are "owned by, vested in, property of, and belong to [plaintiffs]." See Memo in Opp. at p. 30. Notably, despite having argued to the contrary at various other times in this litigation, Plaintiffs finally admit that the fifth and sixth causes of action are based upon an alleged copyright infringement. See id. at pp. 19-21, 30.
By reason of the undisputed facts and Plaintiffs' own admissions, Phoenix and Medavoy are clearly entitled to summary judgment under the fifth and sixth causes of action.
Conclusion
The motion for summary judgment dismissing the complaint is granted.
Settle judgment on notice.