Donovan v. Quade
830 F. Supp. 2d 460
N.D. Ill.2011Background
- Dispute between two co-owners of LNC copyright and QDE ownership; Donovan sues for accounting, fiduciary duty, and removal of Quade as QDE officer; Quade and QDE counterclaim for contract breach, deprivation of copyright revenues, diversion of corporate opportunity, and accounting; bench trial on remaining issues held April 25–29, 2011.
- 1995 written partnership agreement exists, allegedly backdated; ownership split 50/50 between Donovan and Quade; Outside Income provision excludes income outside collaboration.
- QDE formed in 2000 as 50/50 Illinois corporation owned by Donovan and Quade; both served as directors/officers, fiduciary duties owed to each other and to QDE.
- Donovan produced LNC sequels and Donovan’s Sequels through Donovan, Inc. (Donovan’s separate entity) and LNC productions through Donvan/Quade entities; payments and profits were not always shared with Quade or QDE.
- Disputes over royalties, accounting, and whether certain opportunities were corporate opportunities belong to QDE; trial court dissolves QDE, awards certain recoveries to Quade, and orders accounting between Donovan and Quade.
- The court allowed Counts I–III and V to be construed to reflect joint recovery where appropriate, but limited to the extent of damages actually incurred; collateral estoppel issue regarding arbitration potentially moot; expert Garfinkle’s testimony on underlying rights rate admitted; extensive findings of fact and conclusions of law culminate in dissolution of QDE and specific monetary awards.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Contractual partnership scope | Donovan argues partnership agreement not valid or controlling. | Quade/QDE contend agreement governs profits from collaborative works. | Intrinsic ambiguity; extrinsic evidence allowed; not clear that non-collaborative sequels fall outside. |
| Derivation rights and revenues | Quade seeks deprivation damages for Donovan’s use of derivative works. | Donovan argues no shared rights for non-collaborative sequels. | Equitable accounting awarded; underlying rights payment set at one-third of author royalties; Quade entitled to a portion. |
| Corporate opportunity | Quade claims Donovan breached fiduciary duty by diverting LNC opportunities to Donovan, Inc. outside QDE. | Donovan asserts those opportunities were individual, not corporate, and outside QDE’s scope. | Non-collaborative LNC sequels outside QDE not corporate opportunities; but LNC production within QDE scope violated fiduciary duties for LNC in certain respects; dissolution ordered. |
| Dissolution of QDE | Donovan seeks dissolution nunc pro tunc; argues deadlock/oppression warrant dissolution. | Defendants oppose dissolution. | Dissolution of QDE warranted due to ongoing deadlock and oppression; nunc pro tunc relief denied. |
| Accounting viability | Quade and QDE seek accounting for profits/royalties. | Accounting already addressed via other counts; interdependencies complicate duplication. | Judgment entered for Counts III and IV; accounting awarded for specified future profits and royalties; final judgment stayed pending complete accounting. |
Key Cases Cited
- In re Marriage of Schweihs, 272 Ill.App.3d 653 (Ill.App.3d 1995) (duty of officers/partners not to usurp corporate opportunities; corporate duty arises in closely held entities)
- Gaiman v. McFarlane, 360 F.3d 644 (7th Cir. 2004) (equitable accounting principles for co-owners of copyrighted works)
- Georgia-Pacific Corp. v. United States Plywood Corp., 318 F.Supp. 1116 (S.D.N.Y. 1970) (fifteen-factor test for reasonable royalty in derivative works; not all factors applicable here)
- Ashton-Tate Corp. v. Ross, 916 F.2d 516 (9th Cir. 1990) (licensee generally must account for profits to co-owners; derivative works context)
- Conley v. Gibson, 355 U.S. 41 (1957) (pleading standard: avoid technicalities; fair notice on merits)