Cal. Ct. App., October 1, 2012

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  • California Court of Appeal affirms in part judgment in favor of plaintiffs, holding that statutory four-year renewal requirement for waivers of statute of limitations does not apply to tolling agreement, and that plaintiff’s breach of contract action was not time barred, but reduces damages award, finding that jurors committed misconduct by including prejudgment interest.

Plaintiff Don Johnson Productions, Inc., a “loan-out” corporation owned by actor Don Johnson, brought suit in February 2009 against defendants Rysher Entertainment LLC, 2929 Entertainment, LP, and Qualia Capital LLC, the producers and financiers of the television series Nash Bridges, for breach of contract, conversion, unjust enrichment, an accounting, and interference with prospective economic advantage. In December 1994, plaintiff and defendant Rysher entered into a contract for the services of the actor Don Johnson on Nash Bridges, which provided that plaintiff would own a 50-percent interest in the series copyright if the series became eligible for syndication. The contract also provided that plaintiff was entitled to 50 percent of the profits of contingent compensation. In 1999, defendant Rysher sold the syndication rights of the series and, since that time, Nash Bridges has been syndicated worldwide. Defendant Rysher failed to remit any profit from the syndication to plaintiff. In May 2002, plaintiff and defendant Rysher entered into a tolling agreement, which provided that all statutory prescribed periods of limitations would be tolled beginning on May 15, 2002.

At trial, defendants asserted that plaintiff’s claims were barred by the statute of limitations, but the trial court granted plaintiff’s motion for a directed verdict on defendants’ statute of limitations defenses and, thereafter, entered a $23.2-million judgment against defendants, consisting of $15 million in damages and $8.2 million in prejudgment interest. Defendants appealed, arguing that the suit was filed after the tolling agreement expired, no substantial evidence existed to support the court’s contractual interpretation and damage award, and the jury committed misconduct because its verdict included prejudgment interest.

Defendants argued that plaintiff’s complaint was barred by the statute of limitations. Plaintiff filed the complaint in February 2009, and both sides agreed that the contract claims vested in 1998, and therefore plaintiff’s claims were barred by the four-year statute of limitations for written contracts under California law. The defendants argued that the tolling agreement between the parties did not cure the statute of limitations defect because, under Section 360.5 of the California Code of Civil Procedure, waivers of statutes of limitations must be renewed every four years. Because the tolling agreement was executed more than four years before plaintiff filed his suit and was never renewed, defendants argued that plaintiff’s claims were barred by the statute of limitations.

The Court of Appeal rejected defendants’ argument, finding that Section 360.5 did not apply to the tolling agreement. After reviewing the statute’s legislative history, the court determined that Section 360.5 applied only to “waivers” of statutes of limitations, which are different from a tolling agreement. When parties enter into a tolling agreement, noted the court, a potential defendant has not necessarily waived the right to assert the statute of limitations defense. Since plaintiff and defendant Rysher entered into a tolling agreement, and not a waiver of the statute of limitations, Section 360.5’s four-year renewal requirement did not apply to invalidate the tolling agreement, and plaintiff’s 2009 filing of the complaint was timely.

Defendants also argued that there was no substantial evidence to support the contract interpretation and the damages award, asserting that the contract should be interpreted so that the contract’s contingent compensation section was controlled solely by the contract’s adjusted-gross-receipts provision. Plaintiff countered that the contract provided for an additional compensation stream based on its 50-percent copyright ownership. The Appellate Court found substantial evidence that supported plaintiff’s view of the contract, including testimony that Johnson had received no adjusted gross receipts compensation in a prior successful series. Defendants also argued that the damages award was improper because there were no profits resulting from any breach of plaintiff’s copyright interest, as production costs had exceeded the gross receipts. The court disagreed, finding that substantial evidence existed of profits, including testimony that, under Generally Accepted Accounting Principles, a $71.4-million “expense” that was ultimately forgiven during corporate restructuring was not an expense that could offset damages because it was never paid.

Finally, defendants argued that the jurors committed misconduct because their $23.2 million verdict included $8.2 million in prejudgment interest, even though they were not given instructions to calculate prejudgment interest. The appellate court agreed, noting evidence of extensive discussion between the jurors of the desirability of including prejudgment interest, as well as an express agreement to do so, and reversed the $8.2 million prejudgment interest award. The court affirmed the $15 million damages award, however, because defendants had raised no issue concerning this award.