Paul Smith started Celador in 1983 as an independent television production company in the United Kingdom. Smith’s company developed and produced a variety of shows, including the game show “Who Wants To Be A Millionaire? ” which aired in the U. K. in 1998. ‘Millionaire’ was an instant success. ABC, a subsidiary of Walt Disney Company, sought to obtain the rights for the North American “Do You Want To Be A Millionaire” from Celador. ABC asked the William Morris Agency to offer a proposal for the show.
Celador insisted and ABC agreed to a direct network deal and not a deal with a production company. The two companies agreed to a 50/50 merchandising split and a 5/0/50 split on the network broadcast profits. A contract was signed and production began. The population of North America saw the first airing of the Millionaire’ in 1999 and, as happened in the U. K. , the show was a hit. Former CEO of The Walt Disney Company, Michael Eisner, had estimated the value of the show to be over $1B. The show was on ABC for three years and then was sold directly to various independent stations for showing.
ABC then brings Buena Vista Television (BTV), a station owned and operated by ABC. ABC and BVT are now both contracting parties and both receive full license rights. They agree to share 50 percent of all the profits from the show. “Do You Want To Be A Millionaire” caused ABC’s ratings to go from the bottom to number one. Even though the show was a smash hit, ABC claimed it was a catastrophe financially. The show’s first profit participation statement showed a $9 million network broadcast loss and a $1. 5 million loss in merchandising.
The second statement for the show had $18 million in network losses and a $2. 1 million loss for merchandising. According to the Defendant, after 3 years broadcasting on the network and then 7 years in syndication, the show showed a loss of over $73 million on the network and syndication receipts. The plaintiff was paid an initial option payment of $250,000, but had received nothing since then. The Plaintiff felt the figures shown on the statements were incorrect and did not understand how the show could run at a loss.
The William Morris Agency recommended an audit be done to verify the losses. The auditor attempted to work with the Plaintiffs’ accounting department for a year, but was given the run-around regarding documents not available or lost and the auditors reported back to the plaintiff that due to the inability to identify documents and other unresolved problems, they could not confirm whether the show was in the hole or made money. The Plaintiff then went to their attorneys and filed the lawsuit.
Original Filing May 19, 2004, Celador filed suit against ABC, Buena Vista and Valleycrest Productions Ltd. (owned by Disney) for breach of contract and breach of the implied covenant of good faith and fair dealing. They also sued Disney for interference with contract and unfair business practices in accordance with Business & Professions Code Section 17200. Counsel for the plaintiffs contended that Disney -by way of its subsidiaries-prevented Celador receiving its fair share of the profit from the North American version of “Who Wants To Be A Millionaire.
Additionally, Disney was accused of being negligent in its accounting practices by using unethical methods to avoid paying mon ney to Celador and keep the profits within the company What was Alleged in the Lawsuit Breach of contract: The contract specified 50 percent of the profits were to be paid to Celador. This money was never paid, and in fact the Defendant claimed the show had zero profits. The Plaintiff alleged that the Defendant, by using their affiliate, Valleycrest Productions-owned by Disney-for the production services company, was able to set the license fee to ABC at production cost.
If ABC had used a company not affiliated with them (Disney owned), that company would have negotiated a contract for at least the potential of receiving profit. The terms of the contract were unclear and open to more than one interpretation regarding network licensing, as to Celador’s compensation amount to be from “ABC/BVT” and then only “BVT. ” Breach of the covenant of good faith and fair dealing: Unfair dealings that frustrated and disappointed Celador’s reasonable expectations from ABC is the basis of the breach of the implied duty of good faith and fair dealing.
The implied covenant should have stopped ABC and BVT from maneuvering the financial end result so as to retain all of the profit, and Celador receiving nothing. Tortious interference with contract: The Defendant interfered with the contract by using vertical integration when they allowed an affiliate owned by Disney -Valleycrest Productions-to produce the show. They also used inappropriate and unethical accounting practices to hide the millions earned by the show and have the reports show as a loss.
Breach of fiduciary duty: ABC had a duty to Celador to act fairly, to avoid self-interests deals, not misappropriate funds by accounting trickery, and to act in Celador’s best interest regarding producing the show and the revenue earned from the show. There was also an alleged joint venture between Celador and Valleycrest for production services. Fraudulent inducement: Celador entered into the contract with ABC based on the promise of receiving 50 percent of the profits. ABC never planned to keep that promise and brought in BVT, which is owned by ABC, in order to keep all the revenue within the corporation.
Because of this misrepresentation, Celador received nothing from the profits of the show. Constructive fraud: ABC misrepresented the truth regarding how theprofits from the show were to be divided in order to induce Celador to sign the contract. Celador relied on ABC’s promises, which resulted in damages to Celador. Unfair competition under California Business and Professions Code $ 17200: Celador was denied its fair share of the show’s profits because of a lack of a fair-market value network license fee. The accounting methods used by Disney’s affiliates were unfair and deceptive and cost
Celador millions from the merchandising of supplemental products associated with the show. An accounting: Plaintiff requested the Court order an accounting be done by ABCI Disney to trace all monetary transactions having to do with the show. Copyright infringement: Lusam Music created the theme song for ‘Millionaire’ and Disney used it for one of its park attractions without obtaining permission to do so.. Declaratory relief: Plaintiff requested declaratory relief by the court to clarify the legal relationship between the plaintiff and the Defendants.
It was also asked that a declaration be entered regarding the unfair and unreasonable agreements entered between the Defendants. Plaintiff asked that the court make a declaration that Lusam’s copyrights area continuing to be infringed upon. Motion to Dismiss & Motion to Strike. On October 29, 2004, the Defendants (ABC, et. al. ) as stated in Fed. R. Civ. P 12(b)(6) moved to dismiss the following claims filed by Plaintiff (Celador). Breach of the covenant of good faith and fair dealing: Defendants asked the court dismiss this claims since it is based on the same facts as the breach of contract claim.
The court decision was the breach of the covenant of good faith and fair dealing was not duplicative because the Plaintiffs alleged the actions by the Defendant breached the contract and if not, the actions were taken in bad faith and prevented the benefits of the contract. Breach of fiduciary duty: The Defendants contend that there is no fiduciary relationship with the plaintiff and the contract was formed as a debtor/ creditor relationship. Future compensation was controlled by the Defendant.
The court determined that because the plaintiff has alleged a joint venture between themselves and the Defendant, there gives rise to the existence of a fiduciary relationship the duty from this relationship. Fraudulent inducement: Defendants argue that the fraud allegations are not specific enough and are too broad to be sufficient not to dismiss this claim. The court determined that the plaintiff did provide sufficient reason for the claim not to be dismissed. Constructive fraud: The Defendants claim regarding an intent to not keep their promises has not proven and by the Plaintiff.
The court determined that there was enough evidence to allow the claim be heard at trial. Declaratory relief: The Defendants request the court use its discretion to not hear the Plaintiff’s claim for declaratory relief. The court determined that all items listed under this claim would be resolved during the trial phase, and stated that the claim for declaratory relief was dismissed. The Defendants also stated that Smith lacked authority to sue on the contract and requested the breach of contract and breach of the covenant of good faith and fair dealing be dismissed in regard to Smith.
The court determined that Smith does have standing regarding the lawsuit. The move to strike is a standard motion which would allow the court to remove “from any pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter” (Fed. R. Civ. P. 12(f)). Six Years Until Trial: The lawsuit took six years of back and forth legal wrangling before the case went to a jury trial. The Jury Trial: The lawsuit went to trial on June 1, 2016, with 4 women and 5 men on the jury.
The trial lasted fifteen days and just before the jury began their deliberations, Celador chose to have the claims against Disney dismissed. The claims against ABC, Buena Vista, and Valleycrest were not dismissed. The Verdict: The jury found in favor of Celador and against ABC, Buena Vista Television, and Valleycrest Productions on the claims of breach of contract and breach of the implied covenant of good faith and fair dealing. Celador was also found to have not waiver their rights to the network license claim.
Celador was awarded: Commercial: Network license claim: $269,000,000 Commercial: Merchandising claim: $9,193,774 Stipulate prejudgment interest: $50,000,000 Appeals: Defendants have filed appeal after appeal claiming everything from errors in how the contract was interpreted by the judge and by the jury, to the court committed evidentiary and instructional errors. Appeals have been ongoing since the jury found in favor of Celador. Conclusion: The Disney Company, along with the large number of affiliates, makes a very dominate and aggressive corporation.
By Disney using the affiliates owned by them, called “self-dealing” or “vertical integration,” they were able to keep all of the revenue within their corporation and used sneaky accounting tricks to cover up the fact that the show was a money maker. This case showed that large corporations believe they can get away with anything because they have the resources available to play the “shellgame” with finances and if a small company tries to prove unlawful and unethical behavior by the large corporation, the have a legal team to clean up the mess and make it disappear.
The fact that Celador, a small, independent production company, won the lawsuit was surprising. In most cases in Hollywood especially, the big companies win and the small ones disappear. The fact that Disney/ABC lost did not really seem to faze them. They just keep on appealing until maybe they get a new trial or the amount to be paid to Celador is lowered or completely zeroed. Disney has the money and power to keep filing.
