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Paul Haggis, Inc. v. Persik Productions, Inc.

2014 WL 346464 (2014)

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Paul Haggis, Inc. v. Persik Productions, Inc.

California Court of Appeal

2014 WL 346464 (2014)

Facts

Paul Haggis (plaintiff) directed and co-wrote the film Crash. Haggis, along with the film’s co-producer and an actor starring in the film (plaintiffs), entered a contract with financing company Persik Productions, Inc. and its subsidiaries (Persik) (defendants) to provide writing, directing, and acting services for the film in exchange for a flat fee, plus a contingency fee based on the film’s adjusted gross receipts, minus certain deductions. The contingency fee was referred to by the contract as “third-party participations.” After the parties entered the contract, Persik sold its rights in the film to ApolloProScreen (Apollo), which in turn licensed some of the rights back to Persik. The third-party participations were set to be paid from collection and management accounts set up by a Persik subsidiary. Every quarterly accounting period, the accounts would deduct expenses incurred and distribute the third-party participations, and then the remainder was split between Apollo and Persik. The film was a commercial success and won an Oscar for Best Picture. For nearly two years, Persik and Apollo oversaw distributions made to Haggis. Haggis eventually hired his own certified public accountant to conduct an audit of Persik’s accounting for the film, which revealed that Haggis was being underpaid. Persik’s chief financial officer (CFO) then claimed that his own investigation revealed a mistake showing that Haggis was actually overpaid because Apollo should have been treated as a third-party participant entitled to its own fee that would have reduced the profits distributable to Haggis. Haggis filed suit for breach of contract and asked the court to impose a constructive trust for funds owed. The complaint alleged Persik had employed numerous accounting methods to ultimately reduce Haggis’s compensation. The trial court ruled that Apollo was not a third-party participant, that Persik’s accounting otherwise breached the contract, and that the mistake found by the CFO was not genuine. Persik then changed its argument and asserted that it did not receive all gross receipts from the film because it split the amount with Apollo and thus did not owe such amounts to Haggis because Haggis was only entitled to a share of Persik’s receipts. The trial court rejected this argument and found that Persik breached the contract. It imposed a constructive trust in favor of Haggis and awarded over $9.1 million in damages, plus over $2.5 million in prejudgment interest. Persik appealed.

Rule of Law

Issue

Holding and Reasoning (Rothschild, J.)

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