Opinion
97 CIV. 3553 (DLC)
August 14, 2002
Thomas M. Kennedy, Kennedy Schwartz Cure PC, New York, NY, Attorney for the Plaintiff.
G. Robert Gage, Jr., William B. Fleming, Maria A. Mazzocchi, Gage Spencer Fleming LLP, New York, NY, Attorneys for the Defendants.
OPINION AND ORDER
Plaintiff John Hall ("Hall") has brought the instant action as Trustee for the Film Funds Trust Funds ("Trust Funds") to recover payments allegedly owed by defendants Paramount Pictures Corporation ("Paramount") and Viacom International, Inc. ("Viacom"). The defendants have moved for summary judgment. For the reasons that follow, defendants' motion for summary judgment is granted.
BACKGROUND
The Trust Funds were created through trust agreements entered into by producers and distributors of motion picture films and sound tracks and Hall's predecessor Trustee, Samuel R. Rosenbaum ("Rosenbaum"). Pursuant to three of these agreements — the 1951 Television Film Trust Agreement ("1951 Television Agreement") and its successor, the 1954 Television Film Trust Agreement ("1954 Television Agreement"), and the 1954 Hollywood Film Trust Agreement ("Hollywood Agreement") — signatory producers or distributors, called "first parties," are required to pay to the Trustee five percent of gross revenues generated from the television exhibition of "covered" films. The Television Agreements governed the use of films and sound tracks that "are intended for exhibition and/or are exhibited on television broadcasts." The Hollywood Agreement governed the use of films produced "for theatrical exhibition" that were later exhibited on television. The purpose of the Trust Funds, as described in the Hollywood Agreement, was to "arrang[e] and organiz[e] the presentation of personal performances by instrumental musicians in areas throughout the United States" and in the process to "engage instrumental musicians in connection with the presentation of such performances."
Kenneth Raine succeeded Rosenbaum as trustee. Hall, Raine's successor, is substituted as plaintiff pursuant to Fed.R.Civ.P. 25.
The Trust Funds funded free concerts as a way of providing employment to musicians in response to the growing use of "canned" or recorded music and the corresponding decline in jobs for musicians. The development of the Trust Funds and the conflict over the use of canned music is described in Republic Prod., Inc. v. Am. Fed'n of Musicians, 245 F. Supp. 475, 477-78 (S.D.N.Y. 1965), and Raine v. CBS Inc., 25 F. Supp.2d 434, 436 (S.D.N.Y. 1998).
The plaintiff commenced the present action on December 31, 1996, in the United States District Court for the Central District of California. On May 5, 1997, the case was transferred to this Court. On September 23, 1998, this Court dismissed the plaintiff's eighth and tenth causes of action, the defendants' counterclaims, and the defendants' second affirmative defense. Raine v. Paramount Pictures Corp., No. 97 Civ. 3553 (DLC), 1998 WL 655545, at *17 (S.D.N.Y. Sept. 24, 1998).
The Television and Hollywood Agreements have been the subject of litigation before this Court and the Second Circuit, see, e.g., Raine v. RKO Gen., Inc., No. 94 Civ. 4986 (DLC), 1996 WL 131816 (S.D.N.Y. Mar. 25, 1996), aff'd, 138 F.3d 90 (1998); Raine v. Entm't Acquisition Co., No. 95 Civ. 3193 (DLC), 1996 WL 428394 (S.D.N.Y. Jul. 31, 1996), as well as before other courts in this district, see, e.g., Raine, 25 F. Supp.2d at 434; Raine v. Lorimar Prod., Inc., 71 B.R. 450 (S.D.N.Y. 1987); Raine v. Allied Artists Pictures Corp. (In re Allied Artists Pictures), 71 B.R. 445 (S.D.N.Y. 1987); Republic Prod., 245 F. Supp. at 475, and in New York state court, see, e.g., Raine v. Viacom Int'l, Inc., 638 N.Y.S.2d 81 (1st Dep't 1996).
By Order of September 23, 1998, discovery in this case was to be completed by December 18, 1998. On December 22 and 30, 1998, conferences were held to resolve certain discovery disputes. In an Order dated January 5, 1999, discovery rulings issued in those conferences were memorialized and summary judgment motions were scheduled for February and March 1999.
The defendants were ordered to: (1) provide breakdown gross receipt information on, among others, fourteen Viacom films, sixty-eight Paramount films and Terrytoons; (2) explain differences between Terrytoon gross receipt information provided in this and in the state court action; (3) produce information on the first theatrical and first television release dates of the productions; (4) review whether they possess master cards; (5) review whether a company called U.M.M. was a subsidiary of Paramount; (6) review whether they are in possession of a syndication agreement between CBS and WWOR. The parties were ordered to consider stipulating to a date of production for the programs in issue. Should they fail to stipulate, the defendant was ordered to take certain steps with regard to the original and duplicate masters. The plaintiff was ordered to make available documents relating to the state court litigation against CBS.
By letter of February 5, 1999, the Court was notified of plaintiff-Trustee Raine's death. On consent of all parties, the action was stayed on February 10, 1999, pending appointment of a new Trustee. Hall, who was appointed as successor Trustee, notified the Trust Funds of his resignation as Trustee on October 14, 1999. The case remained on the suspense calendar until October 10, 2001, when Hall informed the Court that he was withdrawing his tender of resignation to the Secretary of Labor and his petition before the Surrogate's Court to be relieved as Trustee. The briefing on the summary judgment motions has now been completed.
Plaintiff does not oppose the defendants' motion for summary judgment on the first and ninth causes of action and the defendants' motion is granted as to those claims. The remaining claims that must be addressed are the plaintiff's second through seventh claims, all of which concern the proper interpretation of the parties' obligations under the Hollywood Agreement.
Plaintiff's second claim alleges that Paramount is liable to the Trustee for past-due payments under the Hollywood Agreement for television exhibitions of sixty-eight films allegedly covered by that agreement ("the Sixty-Eight Paramount Films"). The third claim alleges that Viacom, by acquiring Paramount in January 1995, became liable for Paramount's obligations under the Hollywood Agreement, i.e., its obligations concerning the Sixty-Eight Paramount Films.
The plaintiff's fourth claim alleges that Viacom is directly liable under the Hollywood Agreement for payments relating to the television exhibition of fourteen of sixty-three films that were the subject of a previous action ("the Fourteen Viacom Films").
The fifth claim alleges that Viacom and/or Paramount have realized revenue from the exhibition of cartoons known as the "Terrytoons," which include seventy-two "Heckle Jeckle" cartoons sued upon in prior actions, and have failed to pay the Trustee a percentage of the revenue realized from such exhibition as required by the Hollywood Agreement.
Plaintiff's sixth and seventh claims are claims under the Hollywood and Television Agreements. The sixth claim is for an accounting of revenues realized from television exhibition of covered programs and an examination and audit of the defendants' records. The seventh claim is for legal fees and related expenses associated with the Trustee's efforts to collect amounts due under the agreements.
1. The Hollywood Agreement
The Hollywood Agreement requires "first parties" to pay to the Trustee five percent of all revenues generated by the television exhibition of covered films: "Each first party agrees to make the following payments to the Trustee in connection with any film" that (1) "at any time has become, is, or shall become subject to" Section 11 of a labor agreement called a "Basic Agreement" entered into after September 1, 1946, with the American Federation of Musicians ("AFM") "relating to the production of motion pictures for theatrical exhibition," and (2) was first exhibited on television or "sanctioned" for exhibition by the AFM
by such first party, or by assignees, lessees, or licensees, of the first party, or by other users deriving title, lease, license or permission thereto by operation of law or otherwise, by, from or though such first party
between February 1, 1954 and January 31, 1958. A covered film is also one that was exhibited or authorized for exhibition prior to February 1, 1954, if "such exhibition was not covered by any agreement similar in purpose and effect to this agreement." Payments due for covered films "shall continue, so long as any of the films described therein shall continue to be used as therein described."
The defendants claim that the film "must not be covered by a trust agreement similar in purpose and effect to the Hollywood Agreement." This criterion only applies to films exhibited or authorized for exhibition prior to February 1, 1954.
The defendants argue, and the plaintiff agrees, that a program is not "covered" unless the original holder of the distribution and exploitation rights was a first party signatory. In his deposition, George Vajda ("Vajda"), the Trust Funds business manager, stated that "[t]hat guy who had the rights to deal with the film had to sign the trust agreement."
"First parties" are defined in the preamble to the agreement as the "undersigned" producers and distributors and "such others engaged in the production and/or distribution of films as shall hereafter agree to the terms and conditions hereof by executing and delivering a counterpart of this agreement." "[B]y executing and delivering" the agreement, a first party "assumes the duties and obligations to be performed and undertaken" pursuant to the agreement. The process for becoming an additional first party is set out in paragraph seven of the agreement, which provides that other entities may "apply to become an additional first party to this agreement by executing and delivering to the Trustee" an attached schedule. The agreement also notes that at the request of the Trustee, "each first party, whether an original signatory hereof or an additional first party hereto, upon becoming a first party hereto," must pay the Trustee its first payment in advance.
The Hollywood Agreement contains three provisions governing the continuity of obligations and rights of first parties. First, paragraph 2(f) of the agreement provides that a grant of the right to exhibit a covered film, whether by sale, assignment or otherwise, is "subject to the rights and duties established by this agreement." The agreement provides further:
No such grant of right or authority shall be made by any first party, or the successor in interest thereof, to any person, firm or corporation doing business within the United States, Canada, Alaska, Hawaii, and Puerto Rico, unless and until such grantee is or shall become an additional first party to this agreement as herein provided.
(Emphasis supplied.) Second, paragraph eight of the agreement provides that the "obligations imposed by this agreement shall be binding upon controlling interests of each first party and upon subsidiaries of each first party and of such interests and upon successors and assigns of each first party." Third, paragraph ten provides that "[t]his agreement shall be binding upon and inure to the benefit of the heirs, executors, successors and assigns of the first parties, as the case may be, and shall be binding upon and inure to the benefit of the successors to the Trustee, designated in the manner provided herein."
Finally, the agreement requires each first party to "keep full and accurate records and accounts concerning all transactions on which payments to the Trustee are based pursuant to this agreement." The Trustee has the right to examine and audit such records and accounts, and such other records and accounts as may be necessary, such
examination and audit to be made for the purpose of verifying any statements made hereunder by each first party, or due from such first party during a period not exceeding two (2) years preceding such examination and of determining the amount of payments due to the Trustee pursuant hereto.
(Emphasis supplied.) The agreement also provides that in the event of a first party's default on its obligations under the agreement, the Trustee "shall have the duty, right and power forthwith to commence action or take any other proceedings as shall be necessary for the collection thereof." Further, the "Trustee's reasonable expenses, attorney's fees and other disbursements incurred in the collection of any such overdue sums shall be paid to the Trustee by the first party so defaulting and such payment shall be added to the trust fund."
2. Section 11 Basic Agreement
A film is "covered" by the Hollywood Agreement only if it "at any time has become, is, or shall become subject to" Section 11 of a particular kind of labor contract, called a "Basic Agreement," entered into after September 1, 1946, between the AFM (the musicians' union) and the producer or studio ("Section 11 Basic Agreement"). To establish that a film meets this first criterion, the plaintiff must show that it was produced by a producer or studio that had signed a Section 11 Basic Agreement.
"Section 11" of such agreements governs the use of music sound tracks recorded with AFM members. Section 11 is composed of ten subsections, two of which provide:
A. The Producer agrees that all music sound track already recorded, or which will be recorded prior to the expiration of this agreement, will not be used at any time for any purpose whatsoever except to accompany the picture for which the music sound track was originally prepared. . . .
. . . .
H. The Producer agrees that he will not, without the prior written consent of the Federation, license, lease, lend, give, sell, utilize, or in any other way whatsoever authorize the use, in whole or in part, of the music sound track containing the recorded music made by members of the Federation, or scenes or shots containing pictures of members of the Federation performing on musical instruments or conducting, heretofore made or which will be made prior to the expiration of this agreement, on or in connection with television . . . except only after separate negotiations are entered upon and after a separate written agreement has been reached between the [AFM] and the Producer with respect to the use of such music sound track. . . .
(Emphasis supplied.)
3. Television Film Labor Agreement/Letter Agreements
The plaintiff has also submitted copies of a "Television Film Labor Agreement" signed by different entities. It argues that this agreement is equivalent to a Section 11 Basic Agreement. The Television Film Labor Agreement provides:
In consideration . . . of your promise fully and faithfully to perform each and every term, condition, and covenant on your part to be performed pursuant to the "Hollywood Film Trust Agreement, February 1, 1954" . . . it is agreed that you may employ members of the American Federation of Musicians . . . in the production of sound tracks to be used only in connection with the exhibition on television broadcasts of motion picture films and/or sound tracks which are or at any time have been subject to the provisions of Section 11 of the Basic Agreements entered into subsequent to September 1, 1946 between the Federation and employees of its members relating to the production of motion pictures for television exhibition, and/or you may exhibit on television broadcasts such motion picture films and/or sound tracks. . . .
(Emphasis supplied.) Section thirty-nine of the appendix to the Television Film Labor Agreement contains only four subsections — all of which are identical to four of the ten subsections in Section 11 of a Basic Agreement.
Terrytoons, a division of CBS Films, Inc. ("CBS Films"), entered into a "Cartoons Labor Agreement" with AFM. This agreement, effective from July 1, 1959 through June 30, 1962, regulated the payment of revenues for television exhibition of cartoons produced while the agreement was in effect and contained an almost-identical sound track provision in paragraph twenty-seven. A subsequent letter to the Trustee noted that Terrytoons had entered into an agreement that referenced contributions to be made to the Trustee under the Hollywood Agreement between New Rochelle and the Trustee.
Finally, the agreement provides that the provisions of paragraph four had been entered into
in contemplation of and pursuant to the provisions of Section "11" of the Basic Agreements entered into subsequent to September 1, 1946 between the Federation and employees of its members relating to production of films and/or sound tracks for theatrical exhibition.
The signatory producer received permission from the AFM to "cause or permit such films which you own, or with respect to which you have exclusive television distribution rights, to be exhibited on television broadcasts" under certain conditions, including payment of certain sums to the musicians who were employed in the original production.
New Rochelle signed a Television Film Labor Agreement on June 1, 1955. On June 1, 1955 and again on March 1, 1956, New Rochelle amended the Television Film Labor Agreement in two letters ("Letter Agreements"). These letters provided that instead of making the payments specified in paragraph four to individual musicians, New Rochelle agreed to "make contributions to the Trustee named in the Hollywood Film Trust Agreement . . . for the uses and purposes set forth in said Trust Agreement."
4. Transaction Between New Rochelle and CBS Films
The plaintiff argues that Viacom is liable to make certain payments for properties it exhibits because it acquired a company called New Rochelle Music Recording Studios, Inc. ("New Rochelle"), a corporation organized under the laws of New York, through its acquisition of CBS Films. The plaintiff contends that Viacom became a first party to the Hollywood Agreement because New Rochelle had signed the Hollywood Agreement on June 1, 1955.
In 1965, New Rochelle, then a wholly-owned subsidiary of CBS Films, transferred all of its assets and liabilities to CBS Films in exchange for cancellation and redemption of its stock. The sole shareholder of New Rochelle shares — CBS Films — approved the distribution of "all the assets of the Corporation, subject to its liabilities, in satisfaction of the liabilities of the Corporation to CBS Films, Inc., if any, and in complete cancellation and redemption of all of the stock." On April 23, 1965, CBS Inc. ("CBS"), the sole shareholder of CBS Films, approved the liquidation of New Rochelle and the distribution "of all the assets of that subsidiary, subject to its liabilities, in satisfaction of the liabilities of that subsidiary to the Corporation, if any, and in complete cancellation and redemption of all of the stock of that subsidiary." CBS Films changed its name to CBS Enterprises Inc. ("CBS Enterprises") in 1968. In 1971, CBS exchanged the shares of CBS Enterprises, its wholly-owned subsidiary, for shares of Viacom, also its wholly-owned subsidiary. CBS Enterprises was then merged into Viacom.
The defendants maintain, and the plaintiff does not dispute, that CBS Films acquired all of New Rochelle's stock between September 1958 and April 1965.
5. Litigation History
The Trustee sued Viacom for failure to pay royalties owed under the trust agreements at least twice prior to the instant suit. In 1972, Viacom and the Trustee settled a suit concerning seventy-two cartoons exhibited on the Heckle and Jeckle show between 1966 and 1971. In that settlement agreement, Viacom paid the Trustee $16,938 and the Trustee accepted this payment "in full settlement of the liability owed to him as Trustee by the defendant as alleged in the complaint in this action for the period from 1966 to 1971 for the indebtedness of the defendant as successor to New Rochelle Music Recording Studios, Inc." The agreement provided further that "the Hollywood Film Trust Agreement (February 1, 1954) executed by New Rochelle Music Recording Studios, Inc., with the plaintiff as Trustee in June 1955, continues in full force and effect between the parties."
In a 1966 settlement with the Trustee, Republic, allegedly now a subsidiary of Viacom, affirmed the validity of all trust agreements.
In a 1980 settlement between Raine and Viacom, Viacom represented:
(a) that it currently licenses for television exhibition a group of 899 specific cartoons (hereinafter "the 899 cartoons") inclusive of 72 cartoons which are within the scope of the Hollywood Film Trust Agreement (1954) (hereinafter "the Trust Agreement"); (b) that the terms of this stipulation will apply for the duration of time the said 72 cartoons remain a part of the 899 cartoons; (c) that defendant will give prompt written notice to the plaintiff should any or all of the said 72 cartoons cease to be included in the 899 cartoon[s].
(Emphasis supplied.) At the conclusion of the 1980 agreement, Viacom "reaffirm[ed] the terms and conditions of the Trust Agreement entered into between the plaintiff's predecessor as Trustee and the New Rochelle Music Recording Studios, Inc."
In 1984, the plaintiff commenced an action against Viacom and CBS in New York State court. This action was brought under the 1951 and 1954 Television Agreements as well as the Hollywood Agreement. The plaintiff sought payment of royalties for Viacom's exploitation of sixty-three films and all Terrytoon cartoons, as well as CBS's exploitation of, among others, the Phil Silvers Show. On April 2, 1985, the Trustee and CBS entered into a written settlement agreement. In that agreement, CBS acknowledged that it entered into a Trust Agreement dated March 30, 1951, and the two Television Film Trust Agreements of 1954 and 1959.
Viacom answered the complaint in the New York action on October 11, 1985. On November 30, 1985, Paramount and the Trustee entered into an agreement in which Paramount "assume[d] all of the obligations of Desilu as a first-party signatory to the [Television Agreements] with respect to the Desilu Films covered by such trust agreements." Paramount also agreed that if it should
acquire any right, title or interest in television films within the scope of the above two trust agreements by virtue of another first-party signatory, to the extent there would be obligations pursuant to Paragraph 2(f) of such trust agreements if Paramount, rather than Desilu, had been a first-party signatory thereto, Paramount shall assume such obligations and report and pay to the Trustee the sums provided for in the above two trust agreements for all kinds of television exhibitions of such films taking place after the date of such acquisition.
After a period during which the state court action remained inactive, trial between the Trustee and Viacom was held on four days in March and April 1995. At the conclusion of the presentation of evidence, the court granted Viacom's motion to dismiss the case for failure of proof. On April 26, 1995, the court signed a judgment dismissing the case without prejudice. See Raine, 1998 WL 655545, at *7-9 (holding that court's dismissal without prejudice did not constitute res judicata). All aspects of the court's decision were affirmed by the Appellate Division on February 29, 1996. Raine, 638 N.Y.S.2d at 82. The Appellate Division denied Viacom's motion for reargument on July 11, 1996.
DISCUSSION
Summary judgment may not be granted unless the submissions of the parties, taken together, "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). The substantive law governing the case will identify those issues that are material, and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "A dispute regarding a material fact is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Mount Vernon Fire Ins. Co. v. Belize NY, Inc., 277 F.3d 232, 236 (2d Cir. 2002) (citation omitted). The moving party bears the burden of demonstrating the absence of a material factual question, and in making this determination, the Court must view all evidence in the light most favorable to the nonmoving party. Abdu-Brisson v. Delta Air Lines, Inc., 239 F.3d 456, 465-66 (2d Cir.), cert. denied, 122 S.Ct. 460 (2001). When the moving party has asserted facts showing that the nonmovant's claims cannot be sustained, the opposing party must "set forth specific facts showing that there is a genuine issue for trial," and cannot rest on the "mere allegations or denials" of his pleadings. Fed.R.Civ.P. 56(e); see also Goenaga v. March of Dimes Birth Defects Found., 51 F.3d 14, 18 (2d Cir. 1995). In deciding whether to grant summary judgment, this Court must, therefore, determine (1) whether a genuine factual dispute exists based on the evidence in the record, and (2) whether the facts in dispute are material based on the substantive law at issue.
1. Fourth Claim: Viacom's First-Party Status
A. CBS Films's Merger with New Rochelle
Although Viacom itself was not a first-party signatory to the Hollywood Agreement, the plaintiff maintains that it assumed this status through its acquisition of New Rochelle through CBS Films. The plaintiff argues that when it acquired New Rochelle through CBS Films, Viacom assumed not only New Rochelle's then-existing liability under the Hollywood Agreement, but also became obligated to make payments on all "covered" films that Viacom already had — the Fourteen Viacom Films — or would ever acquire for its own library. In other words, although Viacom obtained none of the Fourteen Viacom Films from New Rochelle and was not a first party to the Hollywood Agreement, the plaintiff maintains that Viacom must make payments on these films because: (1) their initial exhibition dates and creation under the terms of the Basic Agreement qualify them as "covered" films under the terms of the Hollywood Agreement; (2) Viacom, through the merger with New Rochelle, became a first party to the Hollywood Agreement, and (3) first parties must pay the Trustee for exhibiting any covered film. Even assuming that the Fourteen Viacom Films are "covered" films, defendants are entitled to summary judgment because the liability assumed by Viacom through its acquisition of New Rochelle was limited to New Rochelle's obligation to make payments for the television exhibition of films in which New Rochelle held rights at the time of the acquisition.
Under New York law, questions relating to the merger of corporate entities are governed by the law the state of incorporation. Fletcher v. Atex, Inc., 68 F.3d 1451, 1456 (2d Cir. 1995) (veil piercing); Rauch v. RCA Corp., 861 F.2d 29, 30 (2d Cir. 1988) (merger); Russian Reinsurance Co. v. Stoddard, 240 N.Y. 149, 154 (1925) (corporate existence). CBS Films/CBS Enterprises is a California corporation, and New Rochelle is a New York corporation. Thus, the liability CBS Films may have assumed, under the law governing corporate mergers, will be governed by the law of California and New York.
The transaction between New Rochelle and CBS Films was structured not as a merger, but as an asset purchase. As a general rule, a corporation that purchases all of the assets of another company is not liable for the obligations of the transferor. A transferee is liable, however, for the obligations of the transferor when the transaction is a de facto consolidation or merger. See, e.g., Arnold Graphics Indus., Inc. v. Indep. Agent Ctr., Inc., 775 F.2d 38, 42 (2d Cir. 1985) (New York law) (contract); Ray v. Alad Corp., 19 Cal.3d 22, 28 (1977) (tort); McClellan v. Northridge Park Townhome Owners Ass'n, Inc., 89 Cal.App.4th 746, 753 (Cal.App. 2001) (contract); Fitzgerald v. Fahnestock Co., 730 N.Y.S.2d 70, 71 (1st Dep't 2001) (contract). Nonetheless, construing the facts in the light most favorable to the nonmoving party, it is assumed for purposes of this motion that the transaction between CBS Films and New Rochelle was a de facto merger.
The result would be the same in both New York and California were the transaction a statutory merger. See Cal. Corp. Code § 1107(a) (West 2002); N.Y. Bus. Corp. § 906(b)(3) (McKinney 2002).
The liability of a successor company is limited to the liability possessed by the predecessor company. Such liability "cannot be more burdensome than that of the constituent corporation." 19 Am Jur.2d Corporations § 2724 (2002). The liability assumed by the surviving corporation does not include liability that the predecessor could have incurred under the contract, but which it did not possess at the time of the merger; rather, its liability is limited to that actually possessed by the predecessor. See Kubiszyn v. Terex Div. of Terex Corp., 628 N.Y.S.2d 994, 997 (4th Dep't 1995); see also John Wiley Sons, Inc. v. Livingston, 376 U.S. 543, 551 n. 5 (1964) (federal labor law); Certain Underwriters at Lloyd's of London v. Pac. S.W. Airlines, 786 F. Supp. 867, 870 n. 2 (C.D.Cal. 1992) (surviving company assumes "all liabilities currently outstanding" after merger). This is certainly the case where, as here, the existence of the liability depended on the "will" of the merged corporation. Ducasse v. Am. Yellow Taxi Operators, 231 N.Y.S. 51, 57 (2d Dep't 1928). Once the merged corporation no longer exists, the contractual obligation cannot be expanded. Id. Thus, to the extent that the plaintiff relies on Viacom's acquisition of New Rochelle to impose liability on Viacom for exhibition of covered films, that liability exists only to the extent that New Rochelle had such a liability at the time of the merger with CBS Films.
The limit on the liability assumed by the successor company is the necessary corollary of the rule prohibiting assignment of a right under a contract that would materially change the performance expected of the obligor. "An assignment of a contractual obligation is necessarily circumscribed by the contemplated performance of the original parties." Sugarlines Co. v. Am. Crystal Sugar Co., 594 F.2d 687, 691 (8th Cir. 1979); see also Restatement (Second) of Contracts § 334 cmt. (1981) ("[A] right cannot be assigned if the effect would be to change materially the duty of the obligor.").
B. Other Asserted Bases for Viacom's Liability
The plaintiff asserts as an alternative ground for finding that Viacom became a first party to the Hollywood Agreement, certain statements by Viacom in the 1972 and 1980 settlements of litigation with the Trustee. In the 1972 agreement, the Trustee accepted Viacom's payment on the seventy-two Heckle Jeckle cartoons "in full settlement" of its liability "as successor to New Rochelle" for the period between 1966 and 1971. This agreement provided further that the Hollywood Agreement, "executed by New Rochelle Music Recording Studios, Inc., with the plaintiff as Trustee in June 1955, continues in full force and effect between the parties." In the 1980 settlement agreement, Viacom acknowledged that the Heckle Jeckle cartoons were covered by the Hollywood Agreement, made certain commitments with regard to those cartoons, and "reaffirm[ed] the terms and conditions of the Trust Agreement entered into between the plaintiff's predecessor as Trustee and the New Rochelle Music Recording Studios, Inc."
Vajda, who acted as the contract manager for Rosenbaum during Rosenbaum's negotiation of the 1972 settlement, states that Rosenbaum, as trustee, insisted on the provision in the 1972 settlement agreement because "Viacom in 1972 and subsequently in 1980 represented that the only covered films it had were the Terrytoons." (Emphasis in original.) Rosenbaum "did not want to have to sue again for each and every film/program Viacom acquired in the future."
Executed more than twenty years after New Rochelle signed the Hollywood Agreement, however, these settlement documents reflect at most Viacom's understanding of the scope of the assignment to it from New Rochelle. Further, nothing in the stipulations settling the litigation indicates an understanding that Viacom had obligations beyond those imposed by its acquisition of the seventy-two Heckle Jeckle cartoons from New Rochelle. Indeed, the Trustee's acceptance of Viacom's 1972 settlement in exchange "for the indebtedness of the defendant as successor to New Rochelle Music Recording Studios, Inc.," and its acceptance, in the 1980 agreement, of Viacom's acknowledgment of liability for only seventy-two of the 899 cartoons is more appropriately viewed as an acknowledgment by the plaintiff that Viacom's liability "as successor" to New Rochelle was limited to its making the payments that New Rochelle had been obligated to make.
The plaintiff also appears to argue that Viacom is a first party because CBS was a party to a Television Film Labor Agreement, which noted that CBS was simultaneously executing the Television Agreement. CBS's potential status as a signatory to one or more Television Agreements is not, however, relevant to Viacom's obligations under the Hollywood Agreement.
2. Second and Third Claims: Paramount's Liability
The plaintiff's second cause of action seeks payment from Paramount for the Sixty-Eight Paramount Films allegedly covered by the Hollywood Agreement. The plaintiff appears to advance five theories for Paramount's liability. First, the plaintiff asserts that Paramount can be held liable by virtue of its merger with Desilu. The transaction between Desilu and Paramount, however, provides no basis for Paramount's liability under the Hollywood Agreement because Desilu was not a signatory to that agreement.
Second, the plaintiff also points to Paramount's acknowledgment of its liabilities in a 1985 settlement agreement. This settlement agreement relates only to the Television Agreements and is not relevant to claims against Paramount based on the Hollywood Agreement.
Third, the plaintiff maintains that Paramount is liable as the subsidiary of a first party, Viacom. While Viacom may have certain first party obligations under the Hollywood Agreement, it is not a first party, and Paramount consequently is not a first party simply because Viacom is its parent.
Fourth, the plaintiff has submitted evidence from which it argues that Paramount must have been a signatory to the Hollywood Agreement. Specifically, it points to the fact that Paramount signed a Section 11 Basic Agreement with the AFM, and that in 1960, it waived the provisions of Article 11 of that agreement. The plaintiff argues that "since there is substantial evidence that the AFM required producers to simultaneously enter into a trust agreement at the same time as a labor agreement, there is a substantial basis from which to infer the status of Paramount as a first party signatory" to the Hollywood Agreement. This reasoning, based on an asserted practice, is insufficient when the plaintiff has produced no other evidence that Paramount ever signed the Hollywood Agreement.
Finally, the plaintiff asserts that Paramount is bound as a first-party because its "distributing affiliate, U.M.M. TV" signed the Hollywood Agreement on October 28, 1955. The plaintiff, however, has not submitted admissible evidence from which to determine the nature or even existence of any relationship between U.M.M. TV and Paramount.
For all these reasons, plaintiff's second cause of action must be dismissed. To the extent that the plaintiff's third claim seeks to hold Viacom derivatively liable as the parent of Paramount, its failure to show that Paramount is liable under the Hollywood Agreement defeats this claim and the plaintiff's third claim must be dismissed.
3. Fifth Claim: Terrytoons
The fifth claim, for payments on the Terrytoon cartoons, requires construction of the Section 11 Basic Agreement and the Television Film Labor Agreement. A court may properly grant summary judgment when it finds that the terms of a contract are "unambiguous, or where no extrinsic evidence exists." Alexander Alexander Serv., Inc. v. These Certain Underwriters at Lloyd's, 136 F.3d 82, 86 (2d Cir. 1998) (applying New York law). In interpreting a contract under New York law, "[t]he primary objective . . . is to give effect to the intent of the contracting parties as revealed by the language they chose to use." Sayers v. Rochester Tel. Corp. Supplemental Mgmt. Pension Plan, 7 F.3d 1091, 1094 (2d Cir. 1993) (citation omitted); see also Crane Co. v. Cotec Indus., Inc., 171 F.3d 733, 737 (2d Cir. 1999). The court may not "rewrite an unambiguous agreement," but must "enforce the plain meaning of that agreement." Painewebber Inc. v. Bybyk, 81 F.3d 1193, 1199 (2d Cir. 1996) (citation omitted); see also Tikotzky v. City of New York, 729 N.Y.S.2d 525, 527 (2d Dep't 2001). Finally, the "contract should be construed so as to give full meaning and effect to all of its provisions." Painewebber, 81 F.3d at 1199 (citation omitted).
The Hollywood Agreement provides that it is to be governed by New York law, and the parties agree that New York law controls. Cargill, Inc. v. Charles Kowsky Res., Inc., 949 F.2d 51, 55 (2d Cir. 1991).
The plaintiff maintains that Viacom is liable for royalties owed on the Terrytoon cartoons originally owned by New Rochelle, a signatory to the Hollywood Agreement, and received by Viacom via CBS Films. To recap, to establish a prima facie case of non-payment under the Hollywood Agreement, the plaintiff must show that New Rochelle, at the time of the merger with CBS Films, possessed films that were (1) the subject of a Section 11 Basic Agreement entered into after September 1, 1946, and (2) first exhibited or authorized for exhibition on television prior to January 31, 1958.
The plaintiff has failed to show that any of the works upon which it has sued was in fact exhibited within the last six years. The parties agree that New York's six year statute of limitations applies to this action. N.Y. C.P.L.R. § 213. When a contract provides for continuing or future performance, the claim accrues when performance is due. Long Is. Lighting Co. v. IMO Indus., Inc., 6 F.3d 876, 888-89 (2d Cir. 1993). It is not necessary to address this failure of proof because plaintiff has failed to offer sufficient proof that payment was required.
It is undisputed that New Rochelle did not sign a Section 11 Basic Agreement. The plaintiff asserts that the Television Film Labor Agreement it did sign was equivalent to a Section 11 Basic Agreement. Even if the Television Film Labor Agreement, as amended by the Letter Agreements, were considered a Section 11 Basic Agreement, however, the plaintiff has presented no evidence that the Terrytoons at issue here, with the exception of seventy-two Terrytoons to be discussed, were covered by the Television Film Labor Agreement since it has not presented evidence from which a fact finder could conclude that they were produced by New Rochelle during the period that agreement was in effect, that is, between February 1, 1954 and January 31, 1958. Indeed, a document attached to the plaintiff's complaint indicates that 689 of 969 Terrytoons were produced prior to 1948.
Similarly, to the extent that the plaintiff argues that the Cartoons Labor Agreement, in which Terrytoons affirmed New Rochelle's obligations under the Hollywood Agreement, is also a Section 11 Basic Agreement, and that CBS Films, as the parent company of Terrytoons, is liable for cartoons produced under that agreement, the plaintiff has not presented any evidence of cartoons produced between the effective dates of the agreement, namely, between July 1, 1959 and June 30, 1962.
The Letter Agreements, which amend New Rochelle's Television Film Labor Agreement, however, do establish that seventy-two of the cartoons at issue in this litigation were produced under the auspices of New Rochelle's Television Film Labor Agreement. The plaintiff maintains and Viacom disputes that the Television Film Labor Agreement, as amended by the Letter Agreements, constitutes an AFM sanction of those cartoons for television exhibition, which is yet another of the requirements which must be met to trigger Viacom's payment obligation. It is unnecessary to determine whether the amended agreement sanctions the exhibition of these cartoons, however, because the plaintiff has not succeeded in providing evidence from which a fact finder could conclude that these cartoons were produced under a Section 11 Basic Agreement or its equivalent.
One hundred and fifty-one cartoons are listed in the schedules to the Letter Agreements. For entirely separate reasons, Viacom has been making payments to the Trust on 72 of these 151 cartoons. An additional seven are duplicates of the cartoons for which Viacom is making payments. The remaining are in dispute.
The defendants argue that the Letter Agreements are not evidence that the cartoons were authorized for exhibition because the authorization was subject to a condition precedent, namely, the obligation to pay the Trustee $50 for each film, and there is no evidence that this condition precedent was fulfilled.
The plaintiff also argues that "the AFM's practice of sanctioning covered films for exhibition as long as the Trusts were paid was so well-established that [the] entire roster of cartoons produced or distributed in the relevant time period should be recognized as covered films," but has submitted no evidence on which such a conclusion could be based.
First, although both the Section 11 Basic Agreement and the Television Film Labor Agreement prohibit the producer from using the sound track in any film other than the film for which the sound track was created, Section 11 — the part of a Section 11 Basic Agreement that governs sound tracks — is considerably more detailed than its counterpart in the Television Film Labor Agreement. For instance, Section 11 contains ten different provisions; the sound track regulation in the Television Film Labor Agreement contains only four of those ten provisions.
Second, the sound track provisions of these two agreements have significantly different effects. Section 11 of the Basic Agreement prohibits a signatory from exhibiting a film on television "except only . . . after a separate agreement has been reached between the [AFM] and the Producer with respect to the use of such music." The Television Film Labor Agreement contains no such prohibition. Indeed, the agreement between New Rochelle and the AFM appears to be one of the "separate agreements" contemplated by the Section 11 Basic Agreement.
Third, the multiple references in the Television Film Labor Agreement to a Section 11 Basic Agreement, including a provision allowing the production of sound tracks to be used only in connection with the television exhibition of films and sound tracks "which are or at any time have been subject to the provisions of Section 11 of the Basic Agreements," indicate that it is not a Section 11 Basic Agreement. The Hollywood Agreement applies only to films subject to a "Section 11" Basic Agreement, and the Court may not add to or vary this term. As a consequence, the plaintiff has not presented evidence to raise a question of fact that the Terrytoon cartoons generally, or even the seventy-two disputed Terrytoons listed under the Television Film Labor Agreement, were films "covered" by the Hollywood Agreement.
The Letter Agreements, as well, in imposing on New Rochelle the obligation to make payment to the Trustee instead of as provided by the Television Film Labor Agreement, reflect an understanding that the films covered by the Television Film Labor Agreement were not already covered by the Hollywood Agreement.
4. Claims for an Accounting and Fees
The plaintiff has also moved for an accounting and for costs and attorney's fees incurred in bringing this action. The plaintiff's claim may succeed only to the extent that Viacom has first-party obligations under the Hollywood Agreement, i.e., obligations with respect to those Terrytoons for which Viacom has admitted that it is required to make payments. Consequently, plaintiff's claim for an accounting with respect to those seventy-two Terrytoons is granted. Viacom is directed, in the event it has not already done so, to provide the plaintiff with this accounting within forty-five days of this Opinion.
The plaintiff also seeks attorney's fees and costs associated with bringing this action. The Trustee is entitled to fees and costs "incurred in the collection of any such overdue sums . . . [from] by the first party so defaulting." Since the plaintiff has not established that Viacom or Paramount are defaulting first parties, plaintiff's claim is denied. Should the accounting show a failure to make required payments, plaintiff may renew its application to the extent it shows fees and costs associated with the accounting claim.
As the plaintiff is no longer pursuing its claims under the Television Agreements, it is not entitled to an accounting of revenues pursuant to this agreement.
5. Discovery Sanctions
In opposing the defendants' 1998 motion for summary judgment, the plaintiff moved pursuant to Rule 37, Fed.R.Civ.P., for an award of $15,000 in costs and attorney's fees incurred in attempting to obtain defendants' compliance with their discovery obligations. The defendants' initial November 1997 response to plaintiff's interrogatories and requests for production was inadequate. Although substantial, the defendants' document production in response to the December 5, 1997 Order was, as defendants acknowledge, incomplete. Defendants' subsequent production on January 16 was made only in response to a January 9, 1998 Order.
The plaintiff is awarded such fees and costs as it can show were incurred in obtaining compliance with its discovery demands and should submit an itemization of these fees and costs within two weeks of this Opinion. The defendants have one week to respond to that itemization, and the plaintiff has one week thereafter to reply.
CONCLUSION
For the reasons stated above, the defendants' motion for summary judgment and the plaintiff's motion for discovery sanctions under Rule 37 are granted. The plaintiff shall submit an itemization of fees and costs incurred in obtaining the defendants' compliance with their discovery obligations no later than two weeks from the date of this Opinion. The defendants shall have one week to respond, and the plaintiff one week thereafter to reply. Viacom shall provide the plaintiff with an accounting concerning the seventy-two cartoons for which it acknowledges its liability within forty-five days of issuance of this Opinion.
SO ORDERED: