Foxcroft Productions Vs Universal City Studios

Verdict

Plaintiffs:  Foxcroft Productions, Inc. (“Foxcroft”) and Fairmount Productions, Inc. (“Fairmount”), the loan-out companies of William Link and Richard Levinson (deceased), writers and creators of the television series “Columbo”

Defendant:  Universal City Studios, LLC (“Universal”)

Trial Judge and Court:  Judge Richard J. Burdge, Jr., Los Angeles County Superior Court

Caption:  Foxcroft Productions, Inc., et al. v. Universal Studios, LLC, et al., Case No. BC683206

Judgment Amount:  $70 million entered October 31, 2019

Plaintiffs’ legal counsel:  Alton G. Burkhalter, Daniel J. Kessler and Keith E. Butler, Burkhalter Kessler Clement & George LLP, Irvine, CA

Defendant’s legal counsel:  Robert N. Klieger, Rajan S. Trehan, Hueston Hennigan LLP, Los Angeles

 

Plaintiffs created the successful television series “Columbo”.  In 1971, Plaintiffs and Universal entered into an agreement pursuant to which Universal agreed to pay Plaintiffs a share of the series’ “net profits” – 20% for seasons in which Plaintiffs served as producers of the series and 10% for all other seasons.  Columbo first aired on NBC for seven seasons between 1971 and 1978 (“NBC Columbo”), then subsequently aired on ABC for eight seasons between 1988 and 2001 (“ABC Columbo”).  The “Agreement” between the parties is evidenced by a 1971 “Deal Memorandum” that consisted of a 16-page type-written body (the “Deal Memo”) and a two-page pre-printed form rider attached thereto as Exhibit A (the “Rider”).

The Rider provided that Universal was not required to provide Plaintiffs with profit participation statements (“PPSs”) for any period in which the series was not profitable, and for 45 years, Universal never provided Plaintiffs with any PPSs.  On the occasions when Plaintiffs would inquire, Universal advised them that the series was not profitable and would likely never be profitable.

In November 2016, however, Universal sent Foxcroft a check for $2.3 million along with a PPS that showed NBC Columbo to be slightly profitable but ABC Columbo to still be at a substantial loss.  Universal sent Fairmount a PPS and a check in the same amount a few months later.  The PPSs revealed, however, that the series has grossed over $700 million since 1971.  The reason for such poor net profits despite the series’ sizable gross revenues stemmed primarily from two accounting maneuvers:  Universal’s deduction of (i) $162 million in “studio” distribution fees, which were never paid to a third party and which bear no relation to actual costs of distribution; and (ii) $152 million of imputed interest, which is a contractual right of the studio to offset profits by a carrying cost for unrecouped production and distribution expenses. 

Within a year of Foxcroft receiving the first PPS, Plaintiffs filed suit in Los Angeles County Superior Court alleging Universal’s failure to share profits according to the terms of the parties’ 1971 agreement.  The lawsuit ultimately proceeded to trial on a single cause of action for breach of contract.  The trial consisted of a jury phase, a bench trial phase, and a damages phase in which damages were determined by a panel of three accounting referees (the “Panel”).  After the first phase of trial, the jury returned a unanimous verdict that Universal was not contractually allowed to deduct its studio distribution fees.  Once the $162 million of improperly deducted studio distribution fees were added back, the show was very profitable, and the imputed interest fell from $152 million to $3.6 million, resulting in Universal owing Plaintiffs over $33 million for their 20/10% share of the net profits ($21M share for distribution fee adjustment and $12M share for net imputed interest adjustment) as later determined by the Panel, and without factoring in prejudgment interest. 

During the bench trial phase, the Court found that Universal was required to account for home video revenue and expenses by reporting 100% of each.  Universal had been accounting on a 20% “royalty” basis.  The Court then ordered a third phase of the trial – before three accounting referees.  During phase 3 of the trial the Panel adjusted the Plaintiffs’ share of net profits upwards by approximately $6 million based on this home video accounting adjustment.  The Panel also determined that Universal overstated production costs by $4.6 million, which findings benefitted Plaintiffs by about $500,000 based on their 10% share of profits, before prejudgment interest.    Importantly, the trial judge correctly found that Plaintiffs were entitled to 7% prejudgment interest, which was determined by the Panel to add another $38 million to the judgment.  The ABC Columbo accounting started with a deficit of about $8 million, which when factored into the adjustments earned by Plaintiffs, resulting in an award of $70 million, as detailed below:

Distribution Fee adjustment:  $21.0M

Imputed interest adjustment   $12.3M

HV rev/exp adjustment          $6.6M

Overstated production costs: $0.5M

Prejudgment interest:             $38.0M

Less ABC Columbo deficit    -8.0M             

Net award                               $70 million[1]

On October 31, 2019, the Court entered judgment in Plaintiffs’ favor for $70 million.  It is expected that Universal will file the typical post-trial motions (new trial and JNOV) and will appeal this judgment.  If Universal does file an appeal, Plaintiffs expect to file a cross-appeal for approximately $25 million.   

 

 

[1] This will be the total amount of the judgment.  Because there are two Plaintiffs, each received judgment for 50% of the total amount.