Wind Dancer Production Group v. Walt Disney Pictures
10 Cal. App. 5th 56
| Cal. Ct. App. | 2017Background
- Producers (Wind Dancer et al.) and Disney contracted that producers get 75% of net profits from TV series Home Improvement; Disney must issue quarterly "participation statements" in summary form and producers have annual audit rights.
- Contract contains an "incontestability" clause: a statement is "conclusively correct" as to transactions "reflected therein for the first time" unless participant objects in "specific detail" within 24 months of the statement; suit must be brought within 6 months after that 24‑month window.
- Producers conducted multiple audits; this suit concerns Audits 4 and 5 (transactions from 1/1/2001–12/31/2005). Producers delivered Audit 4 & 5 reports (written objections) on July 29, 2008. Disney first asserted the incontestability defense in August 2008.
- Disney moved for summary adjudication arguing the producers’ claims were time‑barred by the 24‑month contractual limitations period; trial court granted the motion and entered judgment for Disney.
- On appeal the court (2d Dist., Div. 7) reversed: it held the incontestability clause applies to transactions occurring in the accounting period covered by a statement, but there are triable issues whether Disney waived or is estopped from asserting the clause (oral tolling agreements, course of conduct and audit delays). The judgment was reversed and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Scope/interpretation of the incontestability clause | Clause only bars challenges to transactions apparent on the face of the summary participation statements; audit‑discoverable items are outside clause | Clause applies to all transactions occurring in the accounting period covered by a statement, even if not itemized, because statements are in "summary form" | Court adopts Disney's interpretation: clause covers transactions in the accounting period reflected in the summary statement; 24‑month clock runs from statement date |
| Applicability of the discovery rule to accrual | Discovery rule applies because breaches could be secret and not discoverable until audit completion | Parties contractually waived discovery rule by agreeing to a specified accrual date (statement date) and shortened period; producers were sophisticated | Court holds producers waived discovery rule by contract; accrual is the date statement sent, but waiver does not foreclose other equitable defenses |
| Effect/enforceability of oral tolling/modification (waiver defense) | Producers: parties made oral and written (unsigned) tolling agreements that suspended the 24‑month period for Audit 4 & 5; Disney's conduct and unsigned memorials evidence waiver | Disney: written agreement precludes oral modification; no signed written tolling agreement preserves claims | Court: oral tolling/waiver can be effective despite a no‑oral‑modification clause; producers produced evidence creating triable issues of fact regarding waiver—summary adjudication improper on this ground |
| Estoppel based on Disney's conduct (audit delays, prior course of dealings) | Disney's repeated delays, queueing policy, failure to provide documents, and its prior failure to assert incontestability induced producers to delay objection/suit → equitable estoppel | Disney: merely fulfilled contract by permitting audits; anti‑waiver clause and no basis for estoppel as matter of law | Court finds triable issues of fact whether Disney's conduct reasonably induced producers to refrain from timely suit and thus whether Disney is estopped from asserting the clause; summary adjudication improper |
Key Cases Cited
- Aguilar v. Atlantic Richfield Co., 25 Cal.4th 826 (summary judgment/standard of review)
- Fox v. Ethicon Endo‑Surgery, Inc., 35 Cal.4th 797 (application of discovery rule)
- Brisbane Lodging, L.P. v. Webcor Builders, Inc., 216 Cal.App.4th 1249 (sophisticated parties may abrogate discovery rule by agreement)
- Moreno v. Sanchez, 106 Cal.App.4th 1415 (discovery rule applied where plaintiffs unsophisticated and breach hidden)
- April Enterprises, Inc. v. KTTV, 147 Cal.App.3d 805 (discovery rule for secret contract breaches in entertainment context)
- Wolf v. Walt Disney Pictures & Television, 162 Cal.App.4th 1107 (contract interpretation principles)
- In re Tobacco Cases I, 186 Cal.App.4th 42 (avoidance of surplusage in contract interpretation)