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Case: 11-55104 09/30/2011 ID: 7912936 Dktentry: 27 Page: 1 of 140 Case: 11-55104 09/30/2011 ID: 7912936 DktEntry: 27 Page: 1 of 140 Nos. 11-55104 & 11-55172 UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT __________________________ CELADOR INTERNATIONAL, LTD., Plaintiff-Appellee/Cross-Appellant, v. AMERICAN BROADCASTING COMPANIES, INC.; BUENA VISTA TELEVISION, LLC; and VALLEYCREST PRODUCTIONS, LTD., Defendants-Appellants/Cross-Appellees. __________________________ Appeal From The United States District Court For The Central District of California The late Honorable Florence-Marie Cooper, District Judge Honorable Virginia A. Phillips, District Judge USDC No. 2:04-cv-03541-VAP __________________________ APPELLEE / CROSS-APPELLANT CELADOR INTERNATIONAL, LTD.’S PRINCIPAL AND RESPONSE BRIEF (SECOND BRIEF ON CROSS-APPEAL) __________________________ Roman M. Silberfeld (SBN 62783) Robin Meadow (SBN 51126) Bernice Conn (SBN 161594) Robert A. Olson (SBN 109374) Marcia J. Harris (SBN 76700) Kent J. Bullard (SBN 176194) Bridgette M. Taylor (SBN 173840) Alana H. Rotter (SBN 236666) ROBINS, KAPLAN, MILLER GREINES, MARTIN, STEIN & & CIRESI L.L.P. RICHLAND LLP 2049 Century Park East, Suite 3400 5900 Wilshire Boulevard, 12th Floor Los Angeles, California 90067-3211 Los Angeles, California 90036 Telephone: (310) 552-0130 Telephone: (310) 859-7811 Facsimile: (310) 229-5800 Facsimile: (310) 276-5261 Counsel for Plaintiff-Appellee / Cross-Appellant Celador International, Ltd. Case: 11-55104 09/30/2011 ID: 7912936 DktEntry: 27 Page: 2 of 140 CORPORATE DISCLOSURE STATEMENT Plaintiff-Appellee / Cross-Appellant Celador International, Ltd. is a wholly- owned subsidiary of Celador Entertainment, Ltd. i Case: 11-55104 09/30/2011 ID: 7912936 DktEntry: 27 Page: 3 of 140 TABLE OF CONTENTS Page CORPORATE DISCLOSURE STATEMENT i INTRODUCTION 1 JURISDICTION 2 STATEMENT OF ISSUES 2 STATEMENT OF THE CASE 4 STATEMENT OF FACTS 6 A. Parties. 6 B. Millionaire Is A Smash Hit In Britain And Worldwide. 7 C. ABC Seeks The North American Millionaire Rights. 7 1. At ABC’s behest, the William Morris Agency approaches Celador. 7 2. Celador insists on a deal directly with ABC, which ABC promises. 8 3. Celador and ABC agree to split network profits 50/50. 8 4. ABC brings its affiliated entity BVT into the deal; ABC and BVT secretly agree to guarantee that Celador will never see a dime from Millionaire’s network-run broadcast. 9 ii Case: 11-55104 09/30/2011 ID: 7912936 DktEntry: 27 Page: 4 of 140 TABLE OF CONTENTS (continued) Page D. The Celador-ABC/BVT Rights Agreement. 11 ABC and BVT are both contracting parties. 11 ABC and BVT both receive full license rights. 11 “ABC/BVT” agree to share 50% of all profits derived by “ABC/BVT” from Millionaire. 11 Merchandising: Only expenses “directly” related to the Pilot and/or Series may be deducted. 12 E. Millionaire Is A Smash ABC Hit, Rescuing ABC From The Ratings Cellar. 13 F. Defendants Create A Flurry of Puzzling Post-Rights Agreement Transactions—Purposeless Except To Shield ABC’s Network- Run Profits. 13 G. ABC Increases Others’ Compensation From The Network Run. 16 1. ABC pays BVT more money. 16 2. ABC increases WMA’s Millionaire license-fee- based commission retroactive to Millionaire’s inception. 17 H. Despite Millionaire’s Unprecedented Success, Defendants Report Ever-Increasing Losses Prompting Celador’s Audit. 17 iii Case: 11-55104 09/30/2011 ID: 7912936 DktEntry: 27 Page: 5 of 140 TABLE OF CONTENTS (continued) Page ARGUMENT SUMMARY 20 ARGUMENT 23 I. DEFENDANTS BREACHED THEIR CONTRACT OBLIGATIONS TO SHARE NETWORK-RUN BROADCAST PROFITS WITH CELADOR. 23 A. Breach Of Express Contract: The Text And Extrinsic Evidence Make The Rights Agreement Reasonably Susceptible To Celador’s Reading And Support The Jury’s Verdict. 23 1. Reasonably read, the Rights Agreement entitles Celador to share ABC’s network-run profits. 24 a. The text expressly imposes profit sharing on ABC. 24 b. On its face, Exhibit B does not supersede the Rights Agreement. 25 c. Defendants’ other Exhibit B arguments are meritless. 29 2. Substantial extrinsic evidence—including ABC’s own negotiation notes and Celador’s expressly- communicated requirement of a direct network deal—supports the jury’s interpretation. 31 a. Construed most favorably to the jury’s verdict, the extrinsic evidence supports the jury’s finding that ABC promised to share its profits. 31 b. The jury could reject defendants’ disputed extrinsic evidence. 34 iv Case: 11-55104 09/30/2011 ID: 7912936 DktEntry: 27 Page: 6 of 140 TABLE OF CONTENTS (continued) Page B. Breach Of The Implied Covenant Of Good Faith And Fair Dealing: Substantial Evidence Supports The Jury’s Conclusion That Defendants Interfered With Celador’s Right To Share Millionaire Network License Profits. 39 1. The implied covenant barred ABC and BVT from frustrating Celador’s contractual right to share Millionaire’s network-run broadcast profits. 40 2. Substantial evidence supports the jury’s verdict. 46 a. ABC and BVT wrongly ensured that Millionaire’s network-run broadcast would create no sharable profits. 46 b. Defendants’ maneuvers were not indisputably reasonable. 49 3. The special verdict form supports the network license judgment on the implied covenant claim. 53 II. THERE WAS NO NETWORK LICENSE FEE EVIDENTIARY OR INSTRUCTIONAL ERROR. 56 A. The District Court Properly Refused Defendants’ Argumentative And Misguided Jury Instructions. 56 1. Uncommunicated understanding: Defendants did not request the instruction they advocate; the instruction they did request was argumentative and admittedly unnecessary. 56 2. Renegotiation: The requested instruction misleadingly addressed a theory that Celador did not advance. 57 v Case: 11-55104 09/30/2011 ID: 7912936 DktEntry: 27 Page: 7 of 140 TABLE OF CONTENTS (continued) Page B. The District Court Acted Within Its Discretion In Excluding Defendants’ Spurious, Tangential And Irrelevant Evidence. 58 1. The district court properly excluded a spreadsheet of unknown provenance and purpose. 59 a. No WMA witness recognized the spreadsheet. 59 b. The spreadsheet is irrelevant because it cannot be imputed to Celador. 61 c. The spreadsheet is hearsay. 64 d. The district court properly concluded that defendants failed to authenticate the spreadsheet. 66 e. The district court acted within its discretion in excluding the spreadsheet under Rule 403. 68 2. The district court acted within its discretion in excluding irrelevant and prejudicial evidence of foreign licensing and syndication performance. 69 a. Foreign licensing. 69 b. Syndication. 70 III. CELADOR’S EVIDENCE OF NETWORK LICENSE DAMAGES WAS MORE THAN ADEQUATE. 71 A. Ample Evidence Supports The Fair Market License Fee Award. 71 B. Defendants’ Attacks On The Damages Evidence Are Meritless. 74 1. Defendants fault Celador for failing to prove damages under a theory that it did not pursue. 74 vi Case: 11-55104 09/30/2011 ID: 7912936 DktEntry: 27 Page: 8 of 140 TABLE OF CONTENTS (continued) Page 2. The evidence supported damages based on a fair market license fee starting at Episode 1, even though the jury likely did not calculate damages that way. 75 a. ABC’s own conduct supported applying a fair market license fee starting at Episode 1. 75 b. Any claimed error was harmless: The jury almost certainly did not award damages based on a license fee retroactive to Episode 1. 77 3. There is no basis for second guessing the jury’s view of the expert testimony, the sufficiency of which defendants never challenge. 78 IV. THE JURY PROPERLY DETERMINED THAT THE RIGHTS AGREEMENT DID NOT PERMIT DEFENDANTS’ DOUBLE-DIP MERCHANDISING FEE AND EXPENSE DEDUCTIONS. 80 A. The Provision Permitting Deductions Only For Expenses “Directly Related To The Pilot And/Or Series” Was Reasonably Susceptible To Celador’s Interpretation—That It Excluded Merchandising Expenses Beyond The 50% Merchandising Fee. 81 B. Defendants’ Unambiguity Claim Distorts The Record. 84 1. Defendants’ textual arguments highlight the Agreement’s ambiguity. 84 2. Defendants cannot discount the relevant extrinsic evidence supporting Celador’s interpretation. 85 vii Case: 11-55104 09/30/2011 ID: 7912936 DktEntry: 27 Page: 9 of 140 TABLE OF CONTENTS (continued) Page V. THE DISTRICT COURT ACTED WELL WITHIN ITS DISCRETION IN EXCLUDING EVIDENCE REGARDING A COMPLEX, IRRELEVANT CORPORATE TRANSACTION. 87 CROSS-APPEAL 91 THE DISTRICT COURT SHOULD HAVE ALLOWED THE JURY TO DECIDE CELADOR’S FRAUD CLAIM. 91 A. The Substantial Evidence: ABC Promised, But Never Intended To Honor, A Network Deal. 91 B. The Network Deal Pretense Was Fraud. 93 CONCLUSION 96 ADDENDUM A – Cast of Characters 97 ADDENDUM B – Rights Agreement 99 ADDENDUM C – Statutes & Rules 119 CERTIFICATE OF COMPLIANCE 122 STATEMENT OF RELATED CASES 123 viii Case: 11-55104 09/30/2011 ID: 7912936 DktEntry: 27 Page: 10 of 140 TABLE OF AUTHORITIES Page CASES Alliance Mortg. Co. v. Rothwell 10 Cal. 4th 1226 (1995) 94 Badie v. Bank of America 67 Cal. App. 4th 779 (1998) 40 In re Bell 19 Cal. 2d 488 (1942) 83 In re Bennett 298 F.3d 1059 (9th Cir. 2002) 23 Bird v. Lewis & Clark College 303 F.3d 1015 (9th Cir. 2002) 56 Bowoto v. Chevron Corp. 621 F.3d 1116 (9th Cir. 2010) 69, 89 Boyd v. City & County of S.F. 576 F.3d 938 (9th Cir. 2009) 77 Brobeck, Phleger & Harrison v. Telex Corp. 602 F.2d 866 (9th Cir. 1979) 26 Byrd v. Maricopa Cnty. Sheriff’s Department 565 F.3d 1205 (9th Cir. 2009) 91 Cal. Shipbuilding Corp. v. Industrial Accident Comm’n 85 Cal. App. 2d 435 (1948) 83 Carma Developers v. Marathon Dev. Cal. 2 Cal. 4th 342 (1992) 40, 41, 42, 43, 44 ix Case: 11-55104 09/30/2011 ID: 7912936 DktEntry: 27 Page: 11 of 140 TABLE OF AUTHORITIES (continued) Page CASES Chemetall GMBH v. ZR Energy, Inc. 320 F.3d 714 (7th Cir. 2003) 67 City of Hope Nat’l Med. Ctr. v. Genentech, Inc. 43 Cal. 4th 375 (2008) 24, 28, 81, 86 In re Crystal Properties, Ltd., L.P.
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