The trial got under way March 15 in a case that pits "Roger Rabbit" creator Gary Wolf against the Walt Disney Co. over royalties, accounting and the definition of gross receipts.
LOS ANGELES (The Hollywood Reporter) -- The trial got under way March 15 in a case that pits "Roger Rabbit" creator Gary Wolf against the Walt Disney Co. over royalties, accounting and the definition of gross receipts.
Wolf claims that the 5% royalty he collected on revenue from movies, merchandise and other goods should extend to the estimated value of promotional tie-ins with McDonalds, Burger King and others -- even though Disney was not paid in the process.
As jury selection started in Los Angeles Superior Court, Wolf hoped to prove that gross receipts, as defined in his 1983 license agreement, should apply to cash and "all other considerations," according to the plaintiffs. The case could have a profound impact on Hollywood by upsetting the traditional notion that noncash promotional deals do not count toward gross receipts.
The case was poised to be even more precedent-setting when Wolf said Disney owed him a "fiduciary duty" over the reporting and payment of royalties, potentially making Disney liable for punitive damages in addition to the alleged underpayment.
California's Court of Appeal rejected that argument in February 2003 because the "contingent entitlement to future compensation within the exclusive control of one party" was a contractual relationship, not a fiduciary one in which Disney would have been obligated to act in the best interest of Wolf.
Attorneys for Disney successfully argued that there was no need to assert a fiduciary duty because California law already allowed the burden of proof to be shifted to a defendant in certain circumstances. As the defense reads it, the appellate court ruling puts the burden on Disney to prove its records are accurate. Disney's attorneys said the burden of proof will be decided during the trial and could, in fact, end up falling on Wolf.
A separate appellate court ruling was more favorable to Wolf, allowing him to argue at trial that the contract's definition of "gross receipts" applied to both cash paid to Disney and "all other considerations." Wolf believes the latter includes the cross-promotion deals worth at least $100 million.
The trial court initially said the contract clearly defined gross receipts as referring only to cash, though the appellate court said the meaning should be up to the jury based on its "overall context" in the contract.
Wolf created Roger Rabbit and related characters in a 1981 novel and then licensed the merchandising, motion picture/television and other rights to Disney two years later. The agreement was modified in 1989 after a dispute over auditing rights, the use of the characters at theme parks and other issues.
Those battles will surface at the trial as well.
Wolf claims Disney underreported "Roger Rabbit"-related sales made by Disney and certain third parties. He also believes that he is owed a percentage of the license fees paid to Disney by Tokyo Disneyland and Disneyland Paris, which are not wholly owned and operated by Disney.
Disney said that as a result of the lawsuit, it rechecked its recordings and found an accounting error in Wolf's favor. As a result, Disney plans to seek the return of $500,000-$1 million because the company allegedly overpaid on certain royalties.
The trial is expected to last up to six weeks.
Plaintiff's attorney is Michael Garfinkel, a partner with Rintala, Smoot, Jaenicke & Rees in Los Angeles. Defense attorney is Martin Katz with Sheppard, Mullin, Richter & Hampton in Los Angeles. The attorneys declined comment on the eve of trial.