Golden Globes v. Dick Clark (Daniel Snyder)
posted by Lawrence Cunningham
With this year’s Oscars and Golden Globes now handed out, Hollywood fans can look forward to next week’s hearing about who has the right to produce future Golden Globes. The sponsor of the 68-year old awards show, the Hollywood Foreign Press Association, claims it holds the exclusive power to decide who will produce and broadcast future shows. The show’s long-time producer, a successor to the Dick Clark company, says it has the production rights locked up and an exclusive deal for NBC to do the broadcast.
Resolving the centi-million dollar battle will require interpreting the parties’ contract, originally written in 1983 and amended many times. The company thinks its case is so solid that the association’s objections can be thrown out promptly (on a motion to dismiss). It says the only place to look for guidance is within the contract’s four corners and, looking within those four corners, words plainly mean the company got in 1993 the right to as many annual options to produce the Globes show as it has years under its contract with NBC for the broadcast.
The association says things are more complex. Anyone trying to interpret the contract, it says, can see the parties’ written agreement was not the final and complete statementof the deal. The association says it always was to have the right to approve extensions of Clark’s production options and its power to license the telecast. Those rights ran out this year and the company, despite expiration, entered a secret renewal with NBC and then, fantastically, claimed that doing so magically extended its options under its association contract for the NBC deal’s duration (to 2018).
Before assessing the arguments, the upshot of this dispute seems to be that Dick Clark and the association had a great relationship for two decades that included much informal, non-legalistic mutual reliance. Though they used formal agreements, no one thought they covered every aspect of the understanding. Then, Clark sold his company which, for the last few years, is controlled by private equity giant, Daniel Snyder (who also owns the Washington Redskins).
With the latest version of the contract expiring this year, the association thought, following decades of practice, the company would need its approval to continue and to renew its deal with NBC. The company, seizing on some language in the formal contract, decided that it had the exclusive right to renew the deal with NBC and, having done so, gained automatic extensions of its own options under the association contract.
The case may thus pit some technical legal rules against some old-fashioned equitable impulses. It may also show how those impulses can shape the articulation and application of doctrine. Ultimately, disputes about contract meaning and parol evidence such as this often boil down to a single question: credibility. On this score, the association should win, though at first the doctrinal balance of power goes to the company.
Facts
A 1983 agreement gave Clark options over exclusive rights to produce and license the next four Globe telecasts (1984 through 1987), the two to split profits evenly. Clark exercised that option and then licensed the broadcast to Turner Broadcasting System. Ahead of that deal’s final year, in 1987, the two renewed the contract, giving Clark the same option for the next five Globe telecasts (1988 through 1992). In 1989, the two again renewed the deal to extend Clark’s options through 1997.
In 1993, Clark’s licensing deal with TBS was about to expire and he pursued negotiations not only with TBS but with other broadcasters, and discovered interest from NBC, which had produced the show in the 1960s and 1970s. Clark asked the association’s permission to pursue these arrangements, which it granted. Clark made a deal with NBC, to run from 1994 or 1996 (depending on whether TBS exercised pending options it held or not) through 1999, plus two additional option periods that together extended through 2005, and possible further renewals thereafter.
Operative Language
Clark then proposed to the association that their deal mirror the duration of his NBC deal, through 2005 or for so long as the NBC deal was renewed. In the association’s telling, it refused to accept an open-ended duration, and got Clark’s assurances that he was proposing a finite term, not beyond 2005. After those discussions, the clause in the 1993 contract stated that the association granted Clark (emphasis added):
“eight (8) additional, consecutive, exclusive and irrevocable options to acquire the exclusive right to produce a live television broadcast of and to produce on tape or film the Awards for each of the years 1998 through and including 2005, and for any extensions, renewals, substitutions or modifications of the NBC Agreement . . . .”
Blow Up and Blindsiding
Clark and the association renewed both their own deal and the NBC deal without incident in 2001, both through 2011 but, with Clark’s company now under new ownership, the two came to loggerheads in 2010. They disputed the meaning of that 1993 sentence, especially the “NBC clause” that concluded it. As the 2011 expiration approached, in February 2010, the association started negotiations with the company about another extension. It reminded the company that it had no right to further shows beyond 2011 and should not pursue any licensing deals beyond then until they signed a new deal. The company acknowledged as much.
For the better part of last year, the two sides negotiated. Then, abruptly, in late October, the company informed the associaiton that it extended its NBC deal through 2018 and was exercising options to extend its association contract through that year too. The association was “blindsided” by this “brazen” and illegal “power grab.” It sued the company for breach of contract, asserting it had no right to enter into the NBC contract and no right to exercise options to extend its production contract. The company moved to dismiss. Briefs have been filed and a hearing is set for March 7.
Company’s Arguments
The company makes two simple arguments.
Four Corners Rule. The execution of a written contract supersedes negotiations or stipulations about its subject matter that led up to it. So written terms that people intended as a complete and final expression of their bargain on the subject cannot be supplemented or contradicted by evidence of prior agreements or any oral contemporaneous agreements. This contract, negotiated between two sophisticated parties, appeared complete and final on its face and its provisions manifested that as the parties’ intent.
One provision declares that the contract is the parties’ entire agreement and that it supersedes previous negotiations or agreements. A second disclaimed that either party relied on representations of the other not appearing in the writing. Together, the company says, these terms and the setting show that the parties intended and achieved a fully integrated contract. That bars the association’s evidence asserting that its approval was required for renewals of the NBC deal or extensions of the company’s rights beyond 2011.
Plain Meaning Rule. The company contends the “NBC clause” in the 1993 writing conveyed a plain and single meaning. The company got options to produce the show in every year through 2005 plus every additional year that the NBC contract was in effect. This is not a difficult problem of interpretation, the company says, contrasting a classic example of how the word “dozen” may in fact mean 12 or 13 (a baker’s dozen), justifying hearing evidence about what parties intended. Nothing in the 1993 contract language suggests anything about the company needing the association’s consent to renew its NBC deal or obtain options so long as that deal’s contract was in effect.
Association’s Arguments
The association says things are more complex.
Parol Evidence. The association’s rejoinder first denies that the parties intended for the agreement to be fully integrated. It points to factors showing lack of such intention, despite the integration and disclaimer clauses. There were no arms’-length negotiations over the 1993 amendment or significant involvement of any lawyers for the association. The association signed the amendment the same day that Dick Clark proposed it.
The association also challenges the company’s characterization of the association as a “sophisticated” party, observing that all members are foreign and English is a second language for most. Finally, as a matter of context, the association stresses that the company drafted this language. The upshot: this written agreement does not warrant the respect given to such instruments formed after actual negotiations between experienced enterprises.
Exception. The association asserts a longstanding exception to the rule barring evidence of previous understandings even when parties do intend a writing to be complete and final. Nothing in that rule bars evidence showing grounds to invalidate a contract, such as lack of consideration. This argument supposes that the company is right that the 1993 contract granted it options to produce shows beyond 2011 that it purported to exercise in October.
But the association had earlier, in February, revoked the options, when telling the company not to pursue any television deal. This premise entails the association showing that the option was revocable, meaning it lacked consideration—neither bargained-for nor induced justifiable reliance. Evidence like that would be allowed despite a fully integrated contract. That would enable presenting testimony about the 1993 negotiations, including what Clark said and what the parties intended.
Interpretation. Short of such testimony, the association offers a thicker approach to contract interpretation than the company does to contradict its assertion that the NBC clause has a single plain meaning. The company’s argument concentrates entirely and literally on a few words plucked from a larger sentence and context. But several principles of contract interpretation direct attention to those, including a cardinal principle that agreements should be interpreted as a whole, not isolating discrete words or phrases, and by giving effect to each clause.
The full sentence creating the options has two parts: the first grants eight options and the second, the NBC clause, qualified that. The company’s stance that the NBC clause created a potentially indefinite series of options would negate the need for or meaning of the express grant of eight. Taken together, and given the context of an NBC deal with both a variable start date (1994 or 1996 depending on whether TBS exercised its options) and variable end dates (a fixed term followed by two multi-year option terms), it is plausible that the grant was intended to convey exactly eight options, without regard to when the NBC telecast contract began or ended.
Contra Proferendum. Another valiant principle of contract interpretation is to resolve uncertain meaning against the party responsible for drafting it. This diminishes incentives for gaming the writing process and encourages the drafting party, with greater control over the process, to communicate clearly to the other side. This doctrine, often called by its Latin name “contra proferendum,” aids parties only when there is an ambiguity. It is not usually intended to add weight to the scale when deciding whether an ambiguity exists, but incrementally supports resolving this one against the company.
Reasonableness. The association contends that the company’s interpretation would put the association at the company’s mercy. It would strip the association of any rights in the Globes show, other than presumably whether to have one at all. The association cites cases where judges have refused to do that, and some that resist construing a contract to result in terms that are “unusual, extraordinary, unjust or inequitable,” or that “would be economically and commercially unreasonable.”
Alternative Meaning. To buttress its claim that its interpretation is at least as reasonable as the company’s, the association imagines redrafting the clause to reflect what the company said was intended. Instead of the two-pronged sentence, beginning with eight years and qualified by the NBC clause, the contract readily would have omitted any fixed number such as eight and said simply “a number of options equal to the number of years remaining under Clark’s NBC agreement” or something of the sort.
Course of Performance. The association stresses that the best test of what everyone meant is what everyone did. These parties always acted in accordance with its interpretation: the company always requested additional enumerated option years ahead of running out and always asked the association’s permission before negotiating or signing telecast deals. This was the practice in each of the previous cases—1987, 1993, 1997, and 2001—and even during the better part of 2010, all the way up until the inexplicable and bizarre October turnabout.
On Balance
The equities are with the association. The contract is governed by California law, which has a slightly less strict parol evidence rule and interpretive tradition—eschewing strict versions of the four corners rule and plain meaning rule. The language is not abundantly clear and does not make a whole lot of sense in context. But the company makes two powerful doctrinal arguments, and the association’s parries are not necessarily compelling. Ultimately, disputes about contract meaning and parol evidence often boil down to a single question: credibility. The outcome of the case will be strongly influenced by which of the parties’ lawyers (O’Melveny & Myers v. Munger Tolles) stresses that viewpoint at March 7′s hearing.
February 28, 2011 at 5:48 pm
Posted in: Contract Law & Beyond
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