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Case 2:16-cv-07733-DMG-AS Document 51 Filed 02/01/18 Page 1 of 30 Page ID #:566

1 Peter L. Haviland (SBN 144967)


havilandp@ballardspahr.com
2 Scott S. Humphreys (SBN 298021)
3 humphreyss@ballardspahr.com
Tanya M. Taylor (SBN 312881)
4 taylortm@ballardspahr.com
BALLARD SPAHR LLP
5 2029 Century Park East, Suite 800
Los Angeles, CA 90067-2909
6 Telephone: 424.204.4400
7 Facsimile: 424.204.4350
8 Attorneys for Plaintiffs
9
UNITED STATES DISTRICT COURT
10
CENTRAL DISTRICT OF CALIFORNIA
11
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Los Angeles, California 90067

12
Telephone: 424.204.4400
Ballard Spahr LLP

13 CENTURY OF PROGRESS ) Case No. 2:16-cv-07733-DMG (AS)


PRODUCTIONS; CHRISTOPHER )
14 GUEST; ROB REINER ) PLAINTIFFS’ CONSOLIDATED
PRODUCTIONS; UNITED HEATHEN; ) OPPOSITION TO DEFENDANTS’
15 SPINAL TAP PRODUCTIONS; )
) MOTIONS TO DISMISS
16 HARRY SHEARER; ROB REINER;
and MICHAEL MCKEAN
)
) [Declaration of Scott Humphreys filed
17 ) concurrently herewith]
Plaintiffs, )
18 )
v. )
19 ) Hearing: March 16, 2018
)
20 VIVENDI S.A.; STUDIOCANAL; ) Time: 9:30 a.m.
RON HALPERN, an individual; ) Place: Courtroom 8C,
21 UNIVERSAL MUSIC GROUP, INC.; ) 350 West 1st Street
)
22 UMG RECORDINGS, INC.; and
DOES 1 through 10, inclusive,
) Los Angeles, CA
) Before: Honorable Dolly M. Gee
23 )
)
24 Defendants. )
)
25 )
)
26
27
28

PLAINTIFFS’ CONSOLIDATED OPPOSITION TO DEFENDANTS’ MOTIONS TO DISMISS


Case 2:16-cv-07733-DMG-AS Document 51 Filed 02/01/18 Page 2 of 30 Page ID #:567

1 TABLE OF CONTENTS
2 Page
3 I. PRELIMINARY STATEMENT ..................................................................... 1
4 II. INTRODUCTION ........................................................................................... 2
5 III. FACTUAL BACKGROUND .......................................................................... 5
6 IV. ARGUMENT................................................................................................... 8
7 A. The Economic Loss Rule Does Not Preclude Plaintiffs’
Fraud Claim ........................................................................................... 8
8
1. The “Intentional Tort” Exception ................................................ 9
9
2. California Public Policy Strongly Favors Recognition of
10 an Independent Cause of Action for Intentional Fraud .............. 12
11 3. The “Special Relationship” Exception ...................................... 14
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12 4. The Unpublished District Court Opinion Cited by Vivendi


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Does Not Compel a Different Result......................................... 15


Ballard Spahr LLP

13
B. UMG’s Motion to Dismiss Fails.......................................................... 18
14
1. Plaintiffs Have Properly Alleged Their Breach of Contract
15 and Accounting Claims against UMG. ...................................... 18
16 2. UMG Is Liable for Fraud Because It Directed False
Statements to Vivendi and StudioCanal Intending That
17 Those False Statements be Communicated to Plaintiffs ............ 22
18 3. Reversion of Copyrights of Vivendi, StudioCanal
and UMG Should Be Decided Together ................................... 23
19
V. CONCLUSION.............................................................................................. 24
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1 TABLE OF AUTHORITIES
2 Page(s)
3 Cases
4 Abu-Lughod v. Calis,
No. CV 13-2792 DMG (RZx),
5 2014 WL 12589324 (C.D. Cal. Oct. 9, 2014) ........................................................ 22
6 Alexsam Inc. v. Green Dot Corp.,
No. 2:15-cv-05742-CAS (PLAx),
7 2017 WL 2468769 (C.D. Cal. June 5, 2017) .................................................... 15, 16
8 Bentham v. Bingham Law Group,
No. 13-cv-1424-MMA (WVG),
9 2013 WL 12186171 (S.D. Cal. Nov. 11, 2013) ...................................................... 11
10 Bullock v. Philip Morris USA, Inc.,
159 Cal. App. 4th 655 (2008) ................................................................................. 23
11
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Crystal Pier Amusement Co. v. Cannan,


Los Angeles, California 90067

12 219 Cal. 184 (1933) ................................................................................................ 22


Telephone: 424.204.4400
Ballard Spahr LLP

13 El Dorado Irrigation Dist. v. Traylor Bros., Inc.,


No. CIVS03949-LKK-GGH,
14 2006 WL 306914 (E.D. Cal. Feb. 7, 2006) ............................................................ 11
15 Embotelladora Electropura S.A. De C.V. v. Accutek Packaging Equip. Co., Inc.,
No. 3:16-CV-00724-GPC-DHB,
16 2016 WL 4943049 (S.D. Cal. Sept. 15, 2016) ........................................................ 11
17 Erlich v. Menezes,
21 Cal. 4th 543 (1999) .............................................................................. 3, 9, 10, 13
18
Freeman & Mills, Inc. v. Belcher Oil Co.,
19 11 Cal. 4th 85 (1995) ........................................................................................ 13, 16
20 Gerritsen v. Warner Bros. Entertainment Inc.,
112 F.Supp. 3d 1011 (C.D. Cal. 2015) (“Gerritsen I”), .................................... 20, 21
21
Gerritsen v. Warner Bros. Entertainment Inc.,
22 116 F. Supp. 3d 1104 (C.D. Cal. 2015) (“Gerritsen II”)......................................... 21
23 Goonewardene v. ADP, LLC,
5 Cal. App. 5th 154 (2016) (review granted Feb. 15, 2017) ............................... 4, 20
24
Hannibal Pictures, Inc. v. Sonja Productions LLC,
25 432 F. App’x. 700 (9th Cir. 2011) ...................................................................... 3, 10
26 J’Aire Corp. v. Gregory,
24 Cal. 3d 799 (1979) ............................................................................................. 14
27
Kalitta Air, LLC v. Central Texas Airborne Sys. Inc.,
28 315 F. App’x. 603 (9th Cir. 2008) .................................................................... 10, 14
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1 Lusinyan v. Bank of America, N.A.,


No. CV-14-9586-DMG (JCx),
2 2015 WL 12777225 (C.D. Cal. May 26, 2015) ........................................................ 9
3 Melchior v. New Line Productions, Inc.,
106 Cal. App.4th 779 (2003) .................................................................................. 19
4
Mirkin v. Wasserman,
5 5 Cal. 4th 1082 (1993) ............................................................................................ 22
6 No Cost Conference, Inc. v. Windstream Commc’ns, Inc.,
940 F.Supp.2d 1285 (S.D. Cal. 2013) ..................................................................... 19
7
North American Chemical Co. v. Superior Court,
8 59 Cal. App. 4th 764 (1997)............................................................................. 14, 15
9 R Power Biofuels, LLC v. Chemex LLC,
No. 16-CV-00716-LHK,
10 2016 WL 6663002 (N.D. Cal. Nov. 11, 2016) ...................................................... 15
11 Ray Charles Foundation v. Robinson,
795 F.3d 1109 (9th Cir. 2015) ................................................................................ 24
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12
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Robinson Helicopter Co., Inc. v. Dana Corp,


Ballard Spahr LLP

13 34 Cal. 4th 979 (2004) .......................................................... 9, 10, 11, 12, 13, 14, 17
14 Roddenberry v. Roddenberry,
44 Cal. App. 4th 634 (1996) ................................................................................... 11
15
Shahinian v. Kimberly-Clark Corp.,
16 No. CV 14-8390-DMG (SHx),
2015 WL 4264638 (C.D. Cal. July 10, 2015) ........................................................... 9
17
Spinks v. Equity Residential Briarwood Apartments,
18 171 Cal. App. 4th 1004 (2009)............................................................................... 21
19 Teselle v. McLoughlin,
173 Cal. App. 4th 156 (2009)................................................................................. 22
20
Varwig v. Anderson-Behel Porsche/Audi, Inc.,
21 74 Cal. App. 3d 578 (1977) .................................................................................... 23
22 Western Emulsions, Inc. v. BASF Corp.,
No. CV 05-5246 CBM (SSx)
23 2007 WL 1839718 (C.D. Cal. Jan. 19, 2007) ........................................................ 12
24
25 Statutes
26 California Civil Code § 1559 ..................................................................................... 19
27 California Civil Code § 1589 ............................................................................... 19, 21
28 California Civil Code § 3521 ............................................................................... 19, 21
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1 Other Authorities
2 Federal Rule of Civil Procedure 9(b) ........................................................................... 4
3 Federal Rules of Appellate Procedure, 32.1 .............................................................. 11
4 Ninth Circuit Rule 36-3 ............................................................................................. 11
5 Restatement Second of Torts § 533 ............................................................................ 22
6
7
8
9
10
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13
14
15
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19
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PLAINTIFFS’ OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS
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1 Plaintiffs hereby submit this consolidated opposition to Defendants’ two


2 motions to dismiss. The first motion was filed by Vivendi’s music subsidiary,
3 Universal Music Group, Inc. a/k/a UMG Recordings, Inc. (“UMG”) (Doc. # 44).
4 The second was subsequently filed by Vivendi S.A., Vivendi’s film subsidiary
5 StudioCanal S.A.S. and Ron Halpern (“Vivendi”) (Doc. # 49).
6 I. PRELIMINARY STATEMENT
7 In its November 8, 2017 Order, this Court ordered that “[t]o the extent possible,
8 each side shall file a consolidated brief rather than multiple briefs for separate parties.”
9 (Doc. # 43). Cynically, the Vivendi Defendants disregarded this instruction.
10 The gravamen of Vivendi’s motion is a renewed challenge to Plaintiffs’ claim
11 for fraud, based on Vivendi’s assertion, repeated from its prior motion to dismiss,
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12 that the economic loss rule should bar fraud and punitive damages in lieu of narrower
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13 contract damages given Vivendi’s contract with Plaintiffs. Vivendi’s chosen separate
14 counsel for UMG now “joins in” Vivendi’s economic loss rule argument (Munger
15 Mot. at p. 10, fn. 8), even though, as the Court’s docket reflects, UMG filed its own
16 motion to dismiss prior to Vivendi’s, and even though UMG asserts, despite its own
17 acknowledged responsibility for collecting music royalties payable to the Plaintiffs,
18 that it has no contractual or other obligation whatsoever to the Plaintiffs. It appears
19 that these coordinated motions were submitted separately, irrespective of the Court’s
20 Order, to create the misimpression of separateness in this matter between the Vivendi
21 entities which have in fact collaborated for years to defraud Plaintiffs.
22 Vivendi’s fraud has minimized and understated the value of the film, music,
23 merchandising, intellectual property and related rights in This Is Spinal Tap.
24 This devaluation has injured Plaintiffs far beyond the loss of accounting royalties.
25 It has led to unauthorized and widespread use of their Spinal Tap characters’ and the
26 Plaintiffs’ own names and likenesses; has frustrated Plaintiffs’ ability to market
27 related creative projects; has, by promulgating the fiction that This Is Spinal Tap was
28 a commercial failure, blocked a host of related opportunities which these artists,
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1 notwithstanding their success in other areas, would otherwise have developed.


2 As the Court is aware, Vivendi’s prior motion to dismiss raised a number of
3 technical and procedural challenges to Plaintiffs’ complaint. In its current motion
4 from Irell & Manella, Vivendi has now acknowledged that those challenges are
5 appropriately resolved in factual discovery, and stakes its motion on a single
6 argument: that Plaintiffs’ fraud claim should be stricken – no longer for lack of
7 specificity, but solely because of the economic loss rule.
8 Vivendi writes that “because plaintiffs’ wildly inflated damages demand is
9 based predominantly on punitive damages, any prospect for a reasonable resolution
10 short of judgment will be impossible until this pleading defect is resolved.” (Irell
11 Mot. at p. 1:21-24). None of this is true. Particularly offensive is the implication that
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12 Vivendi has at any time, over the nearly 15 months since this lawsuit was filed,
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13 made any overture for a constructive resolution of this matter.


14 Rather than seek such resolution, Vivendi now repeats its litigation playbook
15 through its wholly owned and controlled subsidiary UMG. UMG brings a new series
16 of procedural challenges to every cause of action on matters again properly resolved
17 in discovery. Plaintiffs respectfully request that the Court deny these challenges so
18 that this case can proceed toward resolution on the merits. In the alternative,
19 Plaintiffs respectfully request leave to amend their complaint to satisfy any remaining
20 pleading concerns of this Court.
21 II. INTRODUCTION
22 In the Second Amended Complaint, This Is Spinal Tap co-creators Harry
23 Shearer, Rob Reiner and Michael McKean joined Christopher Guest in their
24 individual capacities, while clarifying the standing of their loan-out companies to sue.
25 Plaintiffs also added as defendants Vivendi’s co-conspirators and subsidiaries UMG
26 for their part in fraudulent accounting of music royalties, alleging in detail the
27 intentional misrepresentations and active concealment supporting their fraud claim.
28 Plaintiffs further amended to answer Vivendi’s threats of retaliation for their filing of
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1 copyright termination notices to reclaim their creative ownership of Spinal Tap.


2 Vivendi has now withdrawn all of its challenges with one exception: that the
3 fraud claim is barred by the economic loss rule. That rule does not apply here.
4 Plaintiffs have properly alleged a scheme in which Defendants intentionally defrauded
5 them through active concealment and knowingly false representations of material fact.
6 This fraud goes beyond mere failure to account for royalties as required by contract:
7 it involves defendants’ anti-competitive and unfair business practices, including
8 improper self-dealing and cross-collateralization of revenues between Vivendi’s
9 integrated and related subsidiaries. This fraud has caused Plaintiffs to suffer
10 additional damages separate from those recoverable for breach of contract. Under
11 California law, the economic loss rule does not bar such intentional fraud claims.
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12 See, e.g., Erlich v. Menezes, 21 Cal. 4th 543, 553-54 (1999) (“a tortious breach of
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13 contract may be found when (1) the breach is accompanied by a traditional common
14 law tort, such as fraud or conversion; [or] (2) the means used to breach the contract
15 are tortious, involving deceit or undue coercion ….”) (emphasis added); Hannibal
16 Pictures, Inc. v. Sonja Productions LLC, 432 F. App’x. 700, 701 (9th Cir. 2011)
17 (“The California Supreme Court has declined to apply the economic loss rule to fraud
18 and misrepresentation claims where, as here, one party has lied to the other.”)
19 UMG, in its motion to dismiss, makes three arguments, all meritless.
20 First, UMG argues that it cannot be liable for breach of contract because Plaintiffs
21 do not “plausibly allege that UMG is a party to the [Spinal Tap Productions] (“STP”)
22 -Embassy Agreement.” (Munger Mot. at p. 6:12-13.) But UMG concedes that it
23 acquired, through its predecessors, the sound recording rights and obligations
24 memorialized in the Embassy Agreement. (Id. at pp. 3, 6 n. 6.) UMG is responsible
25 for providing the revenues it collects from these sound recordings, through Vivendi,
26 to Plaintiffs. (SAC ¶¶ 53, 72.) UMG admits in its briefing that it is the successor-in-
27 interest to Polygram Records and that it “controls copyrights in [Spinal Tap] sound
28 recordings.” (Munger Mot. at pp. 3, 6, 15:9-10.) UMG indisputably remains
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1 responsible for collecting the sound recording revenues owed to Plaintiffs as


2 articulated in the Embassy Agreement. The accounting statements sent to STP
3 confirm this: the line items for “Gross Receipts -- Music” and “Grantor’s Share of
4 Net Receipts -- Music 50%” are the same as provided in the Embassy Agreement.
5 Furthermore, STP, as a signatory to the Embassy Agreement, and the other plaintiffs,
6 as intended third-party beneficiaries of that agreement, have standing to sue UMG
7 directly for its failure to properly account to Plaintiffs pursuant to any third-party
8 contracts with Embassy (now Vivendi). See Goonewardene v. ADP, LLC, 5 Cal.
9 App. 5th 154, 171 (2016) (review granted Feb. 15, 2017). UMG is also directly
10 responsible for accounting to Shearer, Guest and McKean pursuant to a September 9,
11 1991 agreement for the Spinal Tap album “Break Like the Wind,” which was
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12 released in 1992 by another of UMG’s predecessors, MCA Records, Inc.


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13 Second, UMG argues that Plaintiffs’ fraud claim fails because it is not pled
14 with specificity under Rule 9(b) and because UMG did not make any direct
15 statements to Plaintiffs. (Munger Mot. at pp. 10-13.) These arguments are equally
16 specious. UMG, as Vivendi’s subsidiary responsible for accounting for revenue
17 streams associated with the soundtrack music rights, is directly liable for fraudulent
18 statements made by Vivendi and its other subsidiary StudioCanal to Plaintiffs.
19 Plaintiffs’ complaint contains specific, factual allegations outlining Vivendi’s and
20 UMG’s hidden, fraudulent accounting practices and repeated, knowingly false
21 statements including that they were providing “accurate and reliable accountings to
22 Plaintiffs.” (SAC ¶ 84-92.) These allegations are more than sufficient to state a
23 claim for fraud against all Defendants, particularly where more expansive evidence
24 of the fraud is in Vivendi’s and UMG’s possession and control and can only be
25 obtained through legally compelled discovery.
26 Finally, UMG argues that the declaratory relief claim for copyright reversion
27 against it, as opposed to its parent and co-conspirator Vivendi, is “not ripe” because
28 “UMG has taken no position … with respect to its sound recording copyrights.”
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1 (Munger Mot. at p. 14:9-10.) UMG attempts to distance itself from its corporate
2 parent, and its related subsidiary StudioCanal, which threatened to file suit against
3 plaintiffs to resolve this live controversy. Even if credence were given to the
4 implausible assertion that UMG would take a different position from Vivendi on
5 copyright reversion, judicial economy supports joint adjudication of the validity of
6 termination notices to related parties with identical effective dates.
7 III. FACTUAL BACKGROUND
8 In 1982, Plaintiffs, through STP, entered into an agreement with Embassy for
9 production, financing and distribution of the motion picture This Is Spinal Tap.
10 (SAC ¶¶ 38, 72.) Under that agreement, Embassy (or its successors or assigns) is
11 required to account for and pay to Plaintiffs, inter alia, 40% of all net receipts
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12 related to the film, 50% of all gross receipts from any music for the film, and a 6%
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13 performers’ royalty plus a 3% producer royalty of the retail price of any soundtrack
14 albums. (SAC ¶ 47; see also Embassy Agreement pp. 5-8, ¶¶ 4-6, Exhibit A hereto.)
15 The four co-creators and their loan-out companies are all intended third-party
16 beneficiaries of the Embassy Agreement with standing to sue to enforce it.
17 (SAC ¶¶ 74-75.)
18 The catalogue of Embassy, including unsuccessful films “bundled” with
19 This Is Spinal Tap, was subsequently acquired several times in a succession of
20 transactions until Vivendi and its subsidiaries StudioCanal and UMG ultimately
21 acquired pertinent rights and obligations under the Embassy Agreement. (SAC ¶¶
22 50-53.) Vivendi and its subsidiaries are responsible for accounting under the Embassy
23 Agreement: StudioCanal administers and has a duty to account for revenue streams
24 associated with the movie rights, and UMG administers and has a duty to account for
25 revenue streams associated with the soundtrack movie rights. (SAC ¶ 53.) UMG is
26 also required to account for royalties from another Spinal Tap album, “Break Like the
27 Wind” which UMG’s predecessor-in-interest MCA Records, Inc. released pursuant
28 to a September 9, 1991 agreement between MCA Records (now UMG) and Plaintiffs
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1 Shearer, Guest and McKean. (See Sept. 9, 1991 Agreement and Oct. 15, 1999
2 “Certificate of Merger of MCA Records, Inc. with and into UMG Recordings, Inc.,”
3 Exhibits B & C hereto.)
4 There is a complete unity of interest between Vivendi, StudioCanal and UMG.
5 Vivendi touts itself as “an integrated media and content group” which “operates
6 businesses throughout the media value chain, from talent discovery to the creation,
7 production and distribution of content” through its “main subsidiaries” StudioCanal
8 and UMG. (SAC ¶ 63.) Vivendi’s subsidiaries do not have interests independent
9 from Vivendi with respect to the exploitation of media and accounting obligations
10 owed to Plaintiffs. They operate in practice as arms or divisions of Vivendi,
11 responsible for administering Vivendi’s accounting obligations under the direction
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12 and control of Vivendi. As reported in November 2015, StudioCanal and UMG both
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13 “boosted Vivendi’s results … as the French conglomerate continues its transformation


14 into a global media and entertainment company.” (SAC ¶ 64.) Vivendi also exercises
15 direct control over its subsidiaries through the appointment of overlapping executives.
16 For example, Vivendi’s Chief Executive Officer, Arnaud de Puyfontaine, who serves
17 as Chairman of Vivendi’s Management Board, also serves as a Member of the
18 Supervisory Board for both the Canal+ Group and StudioCanal. In 2011, Vivendi
19 appointed Lucian Grainge as the new Chairman and Chief Executive Officer of
20 Universal Music Group, who Vivendi announced would continue to report to
21 Vivendi’s Chief Executive Officer and serve as a member of the Vivendi
22 Management Board. (SAC ¶ 66.)
23 Since acquiring all pertinent rights in This Is Spinal Tap, Vivendi, StudioCanal,
24 and UMG have issued periodic profit participation statements to STP c/o Creative
25 Artists Agency (“CAA”) representing to Plaintiffs that the gross receipts, expenses
26 and net profits specifically identified therein were truthful and accurate. (SAC ¶ 84.)
27 Vivendi, StudioCanal and UMG have abused the corporate form to defraud Plaintiffs
28 by, inter alia, engaging in anti-competitive and unfair self-dealing between Vivendi
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1 subsidiaries; cross-collateralizing unsuccessful films bundled with This Is Spinal Tap


2 in their accounting; failing to remit accounting statements; failing to respond to
3 inquiries and information requests; failing to include revenues in accounting
4 statements; claiming undocumented and false expenses as part of a fraudulent scheme
5 to deprive Plaintiffs of their contractual rights; and failing to diligently exploit
6 available revenue streams. (SAC ¶ 65.)
7 Despite repeated requests made by Plaintiffs’ agents from approximately
8 2009 to 2012, Defendants failed to deliver to Plaintiffs numerous accounting
9 statements, with gaps for years that would have significantly enhanced revenue,
10 intentionally concealing material facts regarding the actual gross receipts, expenses
11 and profits owed to Plaintiffs. (SAC ¶ 85.) In the accounting statements that
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12 Defendants did deliver to Plaintiffs, Defendants intentionally concealed and/or


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13 omitted material facts that were known only to Defendants and that Plaintiffs could
14 not have reasonably discovered. (SAC ¶ 85.)
15 At the same time, Defendants also affirmatively represented that the
16 accounting statements were truthful and accurate, both in affirmative representations
17 made by the persons responsible for affirming their accuracy on behalf of both
18 StudioCanal and UMG, namely Vivendi’s agents, including Ron Halpern, and
19 through Defendants’ continued delivery of cumulative accounting statements without
20 correction or amendment by their agent Barbara DiNallo. (SAC ¶ 88.) Defendants
21 through their agents further affirmatively represented that they were using all
22 available means to promote Spinal Tap assets and enforce Spinal Tap intellectual
23 property to maximize revenue for the creators. (SAC ¶ 88.) These representations
24 were made on behalf of Vivendi, StudioCanal and UMG, which are all responsible
25 for exploitation of pertinent Spinal Tap rights and for accounting under the Embassy
26 Agreement. (SAC ¶ 90.)
27 It was not until in or about November 2013, when CPP and Shearer learned
28 the results of a study that they had commissioned regarding the accounting
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1 statements and revenue streams associated with This Is Spinal Tap, that CPP and
2 Shearer first discovered Defendants’ fraudulent accounting practices. The other
3 plaintiffs did not discover the bases for their claims until after the initial complaint in
4 this lawsuit was filed on October 17, 2016. (SAC ¶ 91.)
5 Had Defendants disclosed to Plaintiffs these concealed material facts, Plaintiffs
6 would have acted differently, including by, without limitation, shifting control of the
7 exploitation of these assets away from Vivendi and seeking to recover and enforce
8 trademarks and other intellectual property rights many years earlier. (SAC ¶ 91.)
9 As a direct result of Defendants’ intentional misrepresentations and active
10 concealment of material facts, Plaintiffs have been harmed and have suffered damages
11 in amounts to be proven at trial. The damages suffered by Plaintiffs as a result of
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12 Defendants’ fraud are different from and in addition to those suffered under their
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13 breach of contract claims, including but not limited to the out-of-pocket expenses
14 incurred to commission a study to discover the fraud and the lost time-value of money
15 and interest on the monies wrongfully withheld from Plaintiffs. Plaintiffs are also
16 entitled to punitive damages to punish and deter future fraudulent conduct both in this
17 action and in the entertainment industry at large. (See SAC ¶¶ 91-92.) To the extent
18 the Court requires further allegations establishing personal injury to the Plaintiffs
19 apart from these damages as described in this opposition, Plaintiffs respectfully
20 request leave to amend.
21 IV. ARGUMENT
22 A. The Economic Loss Rule Does Not Preclude Plaintiffs’ Fraud Claim
23 As recognized by this Court: “‘California’s economic loss rule has exceptions
24 that fall into two broad categories.’ The first category applies to product liability
25 cases, inapplicable here, and the second category applies to breaches of a
26 noncontractual duty. ‘California courts have found exceptions to the economic loss
27 rule in the noncontractual duty context where the conduct also (1) breaches a duty
28 imposed by some type of ‘special’ or ‘confidential’ relationship; (2) breaches a ‘duty’
8
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1 not to commit certain intentional torts; or (3) was committed ‘intending or knowing
2 that such a breach will cause severe, unmitigable harm in the form of mental anguish,
3 personal hardship, or substantial consequential damages.’” Shahinian v. Kimberly-
4 Clark Corp., No. CV 14-8390-DMG (SHx), 2015 WL 4264638, *8 (C.D. Cal.
5 July 10, 2015) (internal citations omitted).
6 1. The “Intentional Tort” Exception
7 California courts have long recognized an exception to the economic loss rule
8 for intentional torts. As this Court recently explained, the California Supreme Court
9 in Erlich v. Menezes 21 Cal. 4th 543, 553-54 (1999) clarified that “a tortious breach
10 of contract may be found when ‘(1) the breach is accompanied by a traditional
11 common law tort, such as fraud or conversion; (2) the means used to breach the
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12 contract are tortious, involving deceit or undue coercion or; (3) one party
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13 intentionally breaches the contract intending or knowing that such a breach will
14 cause severe, unmitigable harm in the form of mental anguish, personal hardship,
15 or substantial consequential damages.’” Lusinyan v. Bank of America, N.A., No. CV-
16 14-9586-DMG (JCx), 2015 WL 12777225 at *4 (C.D. Cal. May 26, 2015) (emphasis
17 added). The Erlich court explained that “[f]ocusing on intentional conduct gives
18 substance to the proposition that a breach of contract is tortious only when some
19 independent duty arising from tort law is violated.” 21 Cal. 4th at 554. The Erlich
20 court ultimately found that the plaintiff’s claim for negligent breach of contract was
21 “not sufficient to support tortious damages for violation of an independent tort duty”
22 because the jury found that the defendant “did not act intentionally; nor was he guilty
23 of fraud or misrepresentation.” Id.
24 The California Supreme Court confirmed the intentional fraud exception in
25 Robinson Helicopter Co., Inc. v. Dana Corp, 34 Cal. 4th 979 (2004). Robinson was
26 a product liability case where the Court held that the economic loss rule did not bar
27 the plaintiff’s claims for fraud and intentional misrepresentation based on the
28 defendant manufacturer’s provision of false certificates of conformance for the
9
PLAINTIFFS’ CONSOLIDATED OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS
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1 products purchased by plaintiff. Id. at 990-91. The California Supreme Court


2 confirmed its prior holding in Erlich that a breach of contract may be separately
3 actionable in tort when accompanied by fraud or deceit. Id. at 990. The Robinson
4 Court explained that “California’s public policy also strongly favors this holding”:
5 In pursuing a valid fraud action, a plaintiff advances the public interest
6 in punishing intentional misrepresentations and in deterring such
misrepresentations in the future. … In addition, California also has
7 a legitimate and compelling interest in preserving a business climate
free of fraud and deceptive practices. Needless to say, [defendant’s]
8 fraudulent conduct cannot be considered a ‘socially useful business
practice.’ … Allowing [plaintiff’s] claim for [defendant’s] affirmative
9 misrepresentations discourages such practices in the future while
10 encouraging a ‘business climate free of fraud and deceptive practices.’

11 Id. at 991-92 (citations omitted).


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12 The Ninth Circuit has relied on Erlich and Robinson in holding that the
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Ballard Spahr LLP

13 economic loss rule does not bar fraud or intentional misrepresentation claims.
14 In Hannibal Pictures, Inc. v. Sonja Productions LLC, 432 F. App’x. 700, 701
15 (9th Cir. 2011) the Ninth Circuit rejected the argument that the economic loss rule
16 barred a jury verdict finding defendants liable for fraud and negligent
17 misrepresentation in addition to breach of contract. The Ninth Circuit explained:
18 Under California law, tort damages may accompany contract claims
19 when “the duty that gives rise to tort liability is either completely
independent of the contract or arises from conduct which is both
20 intentional and intended to harm.” [quoting Erlich, 21 Cal. 4th 543]. The
California Supreme Court has declined to apply the economic loss rule to
21 fraud and misrepresentation claims where, as here, one party has lied to
22 the other. [citing Robinson, 34 Cal. 4th 979].

23 In Kalitta Air, LLC v. Central Texas Airborne Sys. Inc., 315 F. App’x. 603, 607
24 (9th Cir. 2008) the Ninth Circuit affirmed a district court’s order denying a motion
25 for JMOL with respect to a negligent misrepresentation claim, stating: “We hold
26 that California law classifies negligent misrepresentation as a species of fraud … for
27 which economic loss is recoverable.” (citing Robinson, 34 Cal. 4th 979 n. 7).1
28 1
These Ninth Circuit decisions may be considered as persuasive authority.
10
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1 Consistent with these decisions, California courts have held that fraud
2 claims are permissible where the defendant had an obligation to pay royalties, but
3 knowingly concealed and/or misrepresented the amount of those royalties to the
4 recipient’s detriment. For example, in Roddenberry v. Roddenberry, 44 Cal. App.
5 4th 634, 665 (1996) the California Court of Appeal affirmed a jury’s finding of
6 fraud when the defendant represented that it was paying plaintiff one half (1/2)
7 of all royalties when it was actually paying only one third (1/3) of royalties and
8 concealed this fact:
9 [Defendant] was under a duty to disclose because it was handling money
belonging to [plaintiff]. Even if a fiduciary relationship is not involved, a
10 nondisclosure claim arises when the defendant makes representations but
fails to disclose additional facts which materially qualify the facts
11 disclosed, or which render the disclosure likely to mislead. The evidence
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12 amply supported the finding that [defendant] concealed the true facts in
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the hope that [plaintiff] would accept [defendant’s] payments and never
Ballard Spahr LLP

13 discover that she was receiving only a third.


14 Federal district courts applying California law have likewise held that claims
15 for fraud or intentional misrepresentation are not barred by the economic loss rule.
16 See, e.g., Embotelladora Electropura S.A. De C.V. v. Accutek Packaging Equip. Co.,
17 Inc., No. 3:16-CV-00724-GPC-DHB, 2016 WL 4943049, at *4 (S.D. Cal. Sept. 15,
18 2016) (“the Robinson court made clear that tort damages are permitted in cases where
19 the contract was fraudulently induced or otherwise accompanied by a traditional
20 common law tort, such as fraud”); Bentham v. Bingham Law Group, No. 13-cv-1424-
21 MMA (WVG), 2013 WL 12186171 at *11-12 (S.D. Cal. Nov. 11, 2013) (“As to
22 [plaintiff’s] claim for fraudulent concealment, the Robinson court specifically
23 acknowledged that where fraud or conversion accompanies a breach of contract, the
24 economic loss rule does not bar the tort claim.”)2
25
(See FRAP 32.1, Ninth Circuit Rule 36-3.)
26
2
See also El Dorado Irrigation Dist. v. Traylor Bros., Inc., No. CIVS03949-LKK-
27 GGH, 2006 WL 306914, at *5 (E.D. Cal. Feb. 7, 2006) (“Since the Court is satisfied
that Robinson does not limit tort recovery to fraud involving potential personal injury
28 and there appears to be issues of fact about whether there were affirmative
11
PLAINTIFFS’ CONSOLIDATED OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS
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1 Here, Plaintiffs’ fraud claim is based on intentional misrepresentations and


2 affirmative deceit that are separate and distinct from Vivendi’s contractual breaches.
3 The breach of contract and accounting claims are based on Vivendi’s failure to
4 perform its contractual obligations, including to properly account for and remit to
5 Plaintiffs all royalties and other monies owed them under the Embassy Agreement.
6 (See SAC ¶¶ 72-78.) These claims only require evidence that the contractual
7 obligations were not met, and are cognizable regardless of whether Vivendi made
8 any false statements or otherwise intended to defraud Plaintiffs. By contrast, the
9 fraud claim is based on Vivendi’s malicious, tortious conduct designed to defraud
10 Plaintiffs. Specifically, Vivendi’s knowingly false statements, both through
11 affirmative misrepresentations that they were providing accurate and reliable
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12 accountings to Plaintiffs, and through active concealment of accurate gross-receipts,


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13 expenses and net profits in each of the profit participation statements as well as of
14 Vivendi’s improper self-dealing by sharing of revenues between different Vivendi
15 subsidiaries, including the disproportionate allocation of costs and bundling of
16 unsuccessful films in the Embassy catalogue. (See SAC ¶¶ 84-93.) Vivendi and its
17 subsidiaries StudioCanal and UMG breached this independent tort duty to not
18 knowingly deceive or make affirmative false representations to Plaintiffs.
19 2. California Public Policy Strongly Favors Recognition of
20 an Independent Cause of Action for Intentional Fraud

21 The California Supreme Court has consistently held that the economic loss
22 rule must not be applied mechanically. As Justice Mosk of the California Supreme
23 Court explained: “Perhaps the most reliable manner to differentiate between actions
24
misrepresentations … the motion for summary judgment must be denied.”); Western
25 Emulsions, Inc. v. BASF Corp., No. CV 05-5246 CBM (SSx) 2007 WL 1839718 at *
26 9-10 (C.D. Cal. Jan. 19, 2007) (Robinson holds that “the economic loss rule does not
bar [plaintiff’s] fraud and intentional misrepresentation claims because they were
27 independent of [Defendant’s] breach of contract”… Plaintiff “has offered sufficient
evidence to support its fraud and intentional misrepresentation claims; therefore, the
28 economic loss rule does not bar its claim for punitive damages.”).
12
PLAINTIFFS’ CONSOLIDATED OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS
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1 that are purely contract breaches and those that are also tort violations is the
2 following abstract rule: courts will generally enforce the breach of a contractual
3 promise through contract law, except when the actions that constitute the breach
4 violate a social policy that merits the imposition of tort remedies.” Freeman & Mills,
5 Inc. v. Belcher Oil Co., 11 Cal. 4th 85, 106 (1995) (J. Mosk, conc. & dis. opinion);
6 see also Erlich, 21 Cal. 4th at 551-52 (“Whereas contract actions are created to
7 enforce the intentions of the parties to the agreement, tort law is primarily designed
8 to vindicate ‘social policy.’”)
9 At its core, the economic loss rule is meant to protect a party who intentionally
10 chooses to breach a contract -- a so-called “efficient breach” -- from tort damages
11 related to that decision. See Freeman & Mills, Inc., 11 Cal. 4th at 106 (J. Mosk,
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12 conc. & dis. opinion). That policy is not implicated where intentional fraud is
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13 involved. As the California Supreme Court explained in Robinson: “A breach of


14 contract remedy assumes that the parties to a contract can negotiate the risk of loss
15 occasioned by the breach. … The parties to the contract in essence create a mini-
16 universe for themselves, in which each … trusts the other’s willingness to keep his
17 word and honor his commitments, and in which they define their respective
18 obligations, rewards and risks …. However, ‘[a] party to a contract cannot rationally
19 calculate the possibility that the other party will deliberately misrepresent critical
20 terms to that contract … No rational party would enter into a contract anticipating
21 that they are or will be lied to.’” 34 Cal. 4th at 992-93 (citations omitted).
22 For this reason, allowing a separate claim for fraud does not “tortify” a party’s
23 decision, without more, to intentionally breach a contract. The California Supreme
24 Court explained in Robinson that “[a] decision to breach a contract and then
25 acknowledge it has different consequences than a decision to defraud, and we fail to
26 see how [defendant’s] actions could be deemed ‘commercially desirable.’” Id. at
27 993 n.8. The Robinson Court also explained that California “has a legitimate and
28 compelling interest in preserving a business climate free of fraud and deceptive
13
PLAINTIFFS’ CONSOLIDATED OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS
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1 practices.” Id. at 992. Thus “[i]n pursuing a valid fraud action, a plaintiff advances
2 the public interest in punishing intentional misrepresentations and in deterring such
3 misrepresentations in the future.” Id. Allowing claims for intentional fraud,
4 “discourages such practices in the future while encouraging a ‘business climate free
5 of fraud and deceptive practices.’” Id.
6 The strong public policy in favor of preventing intentionally fraudulent
7 accounting and anti-competitive practices among related subsidiaries of a media
8 conglomerate to advance fraud is clear.
9 3. The “Special Relationship” Exception
10 There also exists a “special relationship” between Plaintiffs and Defendants.
11 In J’Aire Corp. v. Gregory, 24 Cal. 3d 799, 804 (1979), the California Supreme Court
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12 held that the economic loss rule does not bar recovery in tort for foreseeable economic
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13 loss where a “special relationship” exists between the parties. See also Kalitta Air,
14 L.L.C., 315 F. App’x. at 606 (9th Cir. 2008) (“If the district court finds that a ‘special
15 relationship,’ as articulated in J’Aire, exists … then the economic loss rule will not
16 preclude recovery of purely economic loss in this case.”) In recognizing this
17 exception, the J’Aire Court explained that it had “repeatedly eschewed overly rigid
18 common law formulations of duty in favor of allowing compensation for foreseeable
19 injuries caused by a defendant’s want of ordinary care.” Id. at 805. Six criteria are
20 applied to determine whether a special relationship exists: “(1) the extent to which
21 the transaction was intended to affect the plaintiff, (2) the foreseeability of harm to
22 the plaintiff, (3) the degree of certainty that the plaintiff suffered injury, (4) the
23 closeness of the connection between the defendant’s conduct and the injury suffered,
24 (5) the moral blame attached to the defendant’s conduct and (6) the policy
3
25 of preventing future harm.” Id. at 804.
26
3
The special relationship exception applies to contracts for services, as opposed to the
27 sale of goods, even where privity of contract exists. In North American Chemical Co.
v. Superior Court, 59 Cal. App. 4th 764, 781-85 (1997) the California Court of
28 Appeals discussed the difference between contracts for the performance of services
14
PLAINTIFFS’ CONSOLIDATED OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS
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1 Here, a “special relationship” plainly exists between Plaintiffs and Defendants


2 in that Defendants had complete control over the publication, distribution, royalty
3 collection and accounting, and intellectual property enforcement related to Spinal Tap
4 and their intentional fraud in the course of that relationship breached an independent
5 duty created by this special relationship. Specifically: (1) the Embassy Agreement
6 was made expressly for the benefit of Plaintiffs; (2) the harm to Plaintiffs from
7 Defendants’ fraudulent accounting practices was plainly foreseeable; (3) there is no
8 question that Plaintiffs have suffered injury; (4) Plaintiffs’ injuries have resulted
9 directly from Defendants’ conduct; (5) Defendants’ anti-competitive accounting
10 practices, active concealment and intentionally false representations are morally
11 blameworthy; and (6) future harm to Plaintiffs and other artists can readily
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12 be avoided by enforcement of a rule that imposes a duty of due care and honesty in
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Ballard Spahr LLP

13 the performance of Defendants’ obligations to Plaintiffs.


14 4. The Unpublished District Court Opinion Cited by Vivendi
15 Does Not Compel a Different Result

16 Defendants’ economic loss rule argument relies primarily on an unpublished


17 district court decision, Alexsam Inc. v. Green Dot Corp., No. 2:15-cv-05742-CAS
18 (PLAx), 2017 WL 2468769 (C.D. Cal. June 5, 2017). That case, however, is
19 fundamentally different from the instant action.
20
21
22
and contracts for the sale of goods, and held that where the contract is for services the
23 plaintiff may recover in tort for any foreseeable economic loss if there is a “special
relationship” between the plaintiff and the defendant. Id. at 781-785; see also R
24 Power Biofuels, LLC v. Chemex LLC, No. 16-CV-00716-LHK, 2016 WL 6663002
at *5 (N.D. Cal. Nov. 11, 2016) (“In North American Chemical … the California
25 Court of Appeal held that when the parties are in privity of contract, the [special
26 relationship] exception applies if the contracts are for services.”) Here, the Embassy
Agreement is a contract for services: Plaintiffs provided their creative services as the
27 film’s writers, composers/songwriters, actors, and director of This Is Spinal Tap,
and Defendants provided services for financing, production and distribution of the
28 film and accounting for royalty payments due to Plaintiffs. (SAC ¶¶ 46-48.)
15
PLAINTIFFS’ CONSOLIDATED OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS
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1 Alexsam involved a dispute over enforcement of a settlement agreement.


2 Id. at *1. The plaintiff alleged that defendant’s counsel made misrepresentations as
3 to whether certain products were “covered by” licensed patents subject to the
4 settlement agreement, such that royalties were owed to the plaintiff. See id. at *3.
5 Those statements reflected nothing more than defense counsel’s legal opinions
6 concerning application of the terms of settlement agreement, i.e. that defendant “has
7 not engaged in any activities that are covered by any claims of the licensed patents”
8 and that defendant “did not believe it owed any royalties because its products were
9 not covered by the [licensed] patents.” Id. In one of the letters, defense counsel
10 explained: “If you wish to make your contentions more specific, and indicate why
11 the use of BINS is relevant to the question of royalties … [defendant] of course will
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12 consider them in good faith. As things stand, however, we do not see a basis to
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13 believe that royalties are owed.” Id. Given these statements, the district court
14 ultimately concluded that the “plaintiff’s claim for intentional misrepresentation is
15 predicated upon [defendant’s] alleged bad faith denials of liability under the
16 [Settlement] Agreement” a tort that is not recognized in California except in
17 exceptional and rare circumstances. Id. at *6 (citing Freeman & Mills, 11 Cal. 4th
18 at103 (disallowing tort liability for bad faith denial of liability under a contract).
19 In the instant case, the misrepresentations go far beyond mere opinions by
20 legal counsel as to why Defendants “believed” they had complied with their
21 accounting obligations. The fraud here involves active concealment of material facts
22 concerning the specific amounts of gross receipts, expenses and net profits set forth
23 in the accounting statements (SAC ¶ 86), and false representations to Plaintiffs that
24 Defendants were collecting all royalties owed and accurately accounting for them,
25 when in fact Defendants had falsely accounted for a number of specific items,
26 including a $1.6 million settlement payment from MGM and millions of dollars in
27 improper expense deductions. (SAC ¶ 88.) Defendants flatly lied about these
28 material facts not due to a good faith belief that the royalties were not owed to
16
PLAINTIFFS’ CONSOLIDATED OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS
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1 Plaintiffs for some legal reason, but to intentionally deceive Plaintiffs and deprive
2 them of monies actually collected and owed to them.
3 Additionally, Plaintiffs here have alleged extra-contractual damages, including
4 the out-of-pocket expenses incurred to commission a study to discover Vivendi’s
5 fraud, refraining from seeking to shift control of the enforcement and exploitation of
6 valuable Spinal Tap intellectual property rights, and the lost time-value of money and
7 interest payments on unpaid royalties. Plaintiffs are also entitled to punitive damages
8 to punish and deter future conduct both by Defendants and in the entertainment
9 industry at large. (See SAC ¶¶ 91-92.) These extra-contractual damages are
10 permitted under Robinson Helicopter: “But for [defendant’s] affirmative
11 misrepresentations” plaintiff “would not have incurred the cost of investigating the
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12 cause of the faulty clutches.” 34 Cal.4th at 990-91. “Because of the extra measure of
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13 blameworthiness inhering in fraud, and because in fraud cases we are not concerned
14 about the need for ‘predictability about the costs of contractual relationships’
15 [citation], fraud plaintiffs may recover ‘out-of-pocket’ damages in addition to
16 benefit-of-the bargain damages.” Id. at 992.
17 Plaintiffs have also suffered personal damages. Those damages include:
18 reputational harm directly caused by Defendants’ intentional misrepresentations,
19 fraudulent accounting and non-enforcement of Spinal Tap intellectual property
20 which proclaimed, as Defendants still do today, that This Is Spinal Tap was a
21 commercial failure. The public slander of commercial failure has caused significant
22 injury to Plaintiffs in the marketplace independent of the accounting royalties due.
23 Again, Plaintiffs respectfully request leave to further amend their Complaint to allege
24 these facts with greater specificity if the Court so requires.
25 ////
26 ////
27 ////
28 ////
17
PLAINTIFFS’ CONSOLIDATED OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS
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1 B. UMG’s Motion to Dismiss Fails


2 1. Plaintiffs Have Properly Alleged Their Breach of Contract
3 and Accounting Claims against UMG.

4 UMG argues that Plaintiffs’ breach of contract, implied covenant of good faith
5 and fair dealing, and accounting claims fail because Plaintiffs “do not plausibly allege
6 that UMG is a party to the STP-Embassy Agreement.” (Munger Mot. at pp. 6-10.)
7 UMG is wrong.
8 Plaintiffs allege that UMG acquired all pertinent sound recording rights and
9 obligations under the Embassy Agreement and that UMG is responsible for providing
10 the revenues it collects, through Vivendi, to Plaintiffs. (SAC ¶¶ 53, 72.) In its
11 briefing, UMG admits that it is the successor-in-interest to Polygram Records, which
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12 indisputably was responsible under its own agreement with Embassy to collect and
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13 account for the sound recording revenues due to Plaintiffs as set forth in the Embassy
14 Agreement. (See Munger Mot. at pp. 3, 6 n. 6.) This is confirmed by the accounting
15 statements sent to STP: they include line items for “Gross Receipts -- Music” and
16 reflect the “Grantor’s Share of Net Receipts -- Music 50%” as required by the Embassy
17 Agreement. (See Exh. A ¶ 6.) UMG also admits that it currently “controls copyrights
18 in [Spinal Tap] sound recordings.” (Munger Mot. at 15:10-11.) UMG is additionally
19 responsible as the successor-in-interest by merger to MCA Records, Inc. for
20 accounting to Plaintiffs under the terms of a September 9, 1991 Agreement between
21 Shearer, Guest and McKean and MCA Records for production of the Spinal Tap album
4
22 “Break Like the Wind” which was released in 1992. (See Exhibits B & C hereto).
23 Accordingly, UMG is directly liable to Plaintiffs as the successor-in-interest to
24 MCA Record’s accounting obligations under the 1991 Agreement and as the
25 undisputed successor-in-interest to Polygram Record’s contractual assumption of the
26 4
UMG is the surviving corporation from a merger with MCA Records, Inc. and its
27 parent corporation PolyGram Holding, Inc. effective on or about October 15, 1999 as
set forth in the attached Certificate of Merger filed with the California Secretary
28 of State on or about April 21, 2000. (See Exhibit C hereto.)
18
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1 rights and obligations to account to Plaintiffs, through Vivendi, for music royalties
2 under the Embassy Agreement. See, e.g., No Cost Conference, Inc. v. Windstream
3 Commc’ns, Inc., 940 F.Supp.2d 1285, 1299 (S.D. Cal. 2013) (“Under California law,
4 ‘a successor company has liability for a predecessor’s actions if: (1) the successor
5 expressly or impliedly agrees to assume the subject liabilities …[;] (2) the transaction
6 amounts to a consolidation or merger of the successor and the predecessor[;] [or]
7 (3) the successor is a mere continuation of the predecessor…”) UMG, by accepting
8 the benefits of the Embassy Agreement and the 1991 MCA Agreement -- including
9 UMG’s asserted ownership of copyrights in the Spinal Tap sound recordings -- is
10 further estopped under California law from attempting to disclaim its obligations to
11 account to Plaintiffs under those agreements. See Cal. Civ. Code § 1589
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12 (“A voluntary assumption of the benefit of a transaction is equivalent to a consent to


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13 all the obligations arising from it, so far as the facts are known, or ought to be known,
14 to the person accepting.”); Cal. Civ. Code § 3521 (“He who takes the benefit must
15 bear the burden.”); Melchior v. New Line Productions, Inc., 106 Cal. App.4th 779,
16 787 (2003) (defendant film company was liable to account to plaintiff artist under the
17 terms of original contract assigned to the film company).
18 UMG is also liable to Plaintiffs as third-party beneficiaries of the agreement
5
19 between Embassy (now Vivendi) and Polygram Records to which UMG succeeds.
20 Under California law, “[a] contract, made expressly for the benefit of a third person,
21 may be enforced by him at any time before the parties thereto rescind it.” Cal. Civ.
22 Code § 1559. California courts have held that a non-party may enforce a contract as
23 a third-party creditor beneficiary if “the promisor’s performance of the contract will
24
5
This Court has already ruled that Christopher Guest is a third-party beneficiary with
25 standing to enforce the Embassy Agreement. (See Sept. 28, 2017 Order at pp. 7-8,
26 Doc. # 32.) The Court’s analysis applies equally to the other three co-creators --
Shearer, Reiner, and McKean -- and their respective loan-out companies, all of whom
27 are properly alleged to be intended third-party beneficiaries of the Embassy
Agreement. (SAC ¶¶ 1, 74-75.) Defendants no longer challenge the plaintiffs’ status
28 as intended third-party beneficiaries.
19
PLAINTIFFS’ CONSOLIDATED OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS
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1 discharge some form of legal duty owed to the beneficiary of the promise.”
2 Goonewardene v. ADP, LLC, 5 Cal. App. 5th 154, 171 (2016) (petition for review
3 granted February 15, 2017).
4 Goonewardene is instructive. In that case, the Court of Appeal held that
5 plaintiff employee could bring a breach of contract claim against third-party payroll
6 company ADP which had been delegated payroll responsibilities by the employee’s
7 employer. Id. at 171-74. The Court explained that “when an employer enters into
8 a contract with a service provider by which the provider is to take over the
9 employer’s payroll tasks, including the preparation of the payrolls themselves, the
10 employees constitute third party creditor beneficiaries of the contract between the
11 employer and service provider.” Id. at 173. The Court reasoned that “[t]he gravamen
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12 of [plaintiff’s] allegations is that [employer] engaged ADP to discharge [employer’s]


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13 wage-related legal duties to its employees, that is, [employee’s] obligations … to


14 accurately calculate employees’ wages, fully distribute those wages in a timely
15 manner, and provide employees with accurate earnings statements.” Id.
16 Here, like the third-party payroll company in Goonewardene, UMG as
17 successor to Polygram Records, entered into an agreement with Embassy (now
18 Vivendi) which delegated to UMG the duty to collect and account for the music
19 sound recording revenues owed to Plaintiffs as set forth in the Embassy Agreement.
20 The notion that UMG could fraudulently account to Vivendi -- even if UMG had not,
21 as alleged, actively conspired with Vivendi to produce fraudulent accounting
22 statements -- without recourse by Plaintiffs whose income is dependent on UMG’s
23 statements, is absurd.
24 Gerritsen v. Warner Bros. Ent. Inc., 112 F.Supp. 3d 1011 (C.D. Cal. 2015)
25 (“Gerritsen I”), cited by UMG, does not vitiate UMG’s liability to the Plaintiffs.
26 In that case, the plaintiff sued three production companies, Katja, New Line and
27 Warner Bros. (“WB”) for breach of contract. Id. at 1017. The plaintiff author had
28 entered into a contract with Katja and New Line (but not WB) to purchase motion
20
PLAINTIFFS’ CONSOLIDATED OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS
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1 picture rights to her book. Id. at 1017-18. WB subsequently acquired control of


2 those companies, and then separately purchased the rights to a screenplay titled
3 “Gravity” which WB then produced into a movie by the same name. Id. at 1018-19.
4 Plaintiff sued, claiming that the movie was actually “based on” her book and not the
5 screenplay, and that WB had breached the contract because it had assumed Katja’s
6 and New Line’s rights and duties under the contract. Id. The district court disagreed,
7 finding there was no plausible inference that Katja had produced the film, or that
8 WB was a party to the contracts between the plaintiff and Katja and New Line.
9 Id. at 1036. The district court’s decision was limited to plaintiff’s allegations that
10 WB could be held vicariously liable under three theories: (i) successor-in-interest,
11 (ii) alter ego and (iii) agency liability. See id. at 1036-1047. The district court did
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12 not address whether WB could be held liable either directly under California Civil
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13 Code §§ 1589 and 3521, or under a third-party beneficiary theory. Id.; see also
14 Gerritsen v. Warner Bros. Ent. Inc., 116 F. Supp. 3d 1104, 1123-1126 (C.D. Cal.
15 2015) (“Gerritsen II”). The district court also found that WB was not a successor-in-
16 interest to Katja or New Line because the plaintiff failed to establish that Katja and
17 New Line transferred all of their assets to WB, or that WB was the “mere
18 continuation” of Katja and New Line where both corporations continued to exist in
19 their prior form. See Gerritsen II, 116 F.Supp.3d at 1130-1134. Therefore, the
20 Gerritsen decisions have no bearing here, where Plaintiffs have sued UMG for
21 direct liability and as the undisputed successor-in-interest of MCA Record’s rights
22 and obligations under the 1991 Agreement and Polygram Records’ rights and
23 obligations under the Embassy Agreement, and/or because Plaintiffs are third-party
24 creditor beneficiaries of the contract between Embassy and Polygram Records to
6
25 which UMG succeeds.
26
6
For the same reasons, Plaintiffs’ related claims for breach of the implied covenant of
27 good faith and fair dealing and an accounting are properly alleged. See, e.g., Spinks v.
Equity Residential Briarwood Apartments, 171 Cal. App. 4th 1004, 1033-34 (2009)
28 (intended third-party beneficiary can assert a claim for breach of the implied covenant
21
PLAINTIFFS’ CONSOLIDATED OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS
Case 2:16-cv-07733-DMG-AS Document 51 Filed 02/01/18 Page 27 of 30 Page ID #:592

1 2. UMG Is Liable for Fraud Because It Directed False


2 Statements to Vivendi and StudioCanal Intending That
Those False Statements be Communicated to Plaintiffs
3
4 UMG next argues that Plaintiffs’ fraud claim fails because UMG made no
5 direct statements to Plaintiffs, and the claim is not pled with specificity under
6 Rule 9(b). (Munger Mot. at pp. 10-13.) Both arguments are specious.
7 It has long been the law that “[i]n order for representations to be actionable,
8 it is not necessary in all cases that they be directly made to the parties seeking
9 recovery. ‘A representation made to one person with the intention that it shall reach
10 the ears of another, and be acted upon by him, and which does reach him, and is
11 acted upon by him to his injury, gives the person so acting upon it the same right to
2029 Century Park East, Suite 800
Los Angeles, California 90067

12 relief or redress as if it had been made to him directly.’” Crystal Pier Amusement Co.
Telephone: 424.204.4400
Ballard Spahr LLP

13 v. Cannan, 219 Cal. 184, 188 (1933); see also Mirkin v. Wasserman, 5 Cal. 4th 1082,
14 1098 (1993) (“The maker of a fraudulent misrepresentation is subject to liability for
15 pecuniary loss to another who acts in justifiable reliance upon it if the
16 misrepresentation, although not made directly to the other, is made to a third person
17 and the maker intends or has reason to expect that its terms will be repeated or its
18 substance communicated to the other, and that it will influence his conduct in the
19 transaction or type of transactions involved.” (quoting Restatement Second of Torts
20 § 533 and collecting cases that have applied the principle). Moreover, “[a] plaintiff
21
22 of good faith and fair dealing with respect to the contract); Teselle v. McLoughlin,
173 Cal. App. 4th 156, 179 (2009) (“A cause of action for an accounting requires a
23 showing that a relationship exists between the plaintiff and defendant that requires an
accounting, and that some balance is due the plaintiff that can only be ascertained by
24 an accounting…. [A] fiduciary relationship between the parties is not required to state
a cause of action for accounting. All that is required is that some relationship exists
25 that requires an accounting.”) Plaintiffs have also alleged with specificity a claim for
26 fraud against UMG based on its fraudulent accounting which further permits them to
bring an accounting claim. See, e.g., Abu-Lughod v. Calis, No. CV 13-2792 DMG
27 (RZx), 2014 WL 12589324, at *6-7 (C.D. Cal. Oct. 9, 2014) (granting plaintiff leave
to amend its accounting claim provided he “can properly allege against [defendant] a
28 claim that sounds in fraud.”)
22
PLAINTIFFS’ CONSOLIDATED OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS
Case 2:16-cv-07733-DMG-AS Document 51 Filed 02/01/18 Page 28 of 30 Page ID #:593

1 need not prove that he or she directly heard a specific misrepresentation or false
2 promise to establish actual reliance.” Bullock v. Philip Morris USA, Inc., 159 Cal.
3 App. 4th 655, 676 (2008). This theory of liability is broad enough that the maker of
4 the misrepresentation need not “have any particular person in mind.” Varwig v.
5 Anderson-Behel Porsche/Audi, Inc., 74 Cal. App. 3d 578, 581 (1977).
6 The Second Amended Complaint alleges Vivendi’s and UMG’s hidden,
7 fraudulent accounting practices and repeated, knowingly false statements that the
8 gross receipts, expenses and net profits identified therein -- including music royalties
9 -- were “truthful and accurate.” (SAC ¶¶ 84-88.) UMG directed those representations
10 to Plaintiffs through Vivendi, knowing that Vivendi, StudioCanal and their agents
11 would repeat those false representations to Plaintiffs. These false statements were not
2029 Century Park East, Suite 800
Los Angeles, California 90067

12 made in isolation, but were part of a fraudulent scheme involving improper self-
Telephone: 424.204.4400
Ballard Spahr LLP

13 dealing between UMG, Vivendi, and StudioCanal. These allegations are more than
14 sufficient to state a claim for fraud against UMG, particularly where more expansive
15 evidence of the fraud is in Vivendi, StudioCanal and UMG’s possession and control
16 and can only be obtained through legally compelled discovery.
17 3. Reversion of Copyrights of Vivendi, StudioCanal and UMG
18 Should Be Decided Together

19 UMG’s last argument is that the declaratory relief claim for copyright
20 reversion against it, as opposed to its parent and co-conspirator Vivendi, is “not ripe”
21 because “UMG has taken no position … with respect to its sound recording
22 copyrights.” (Munger Mot. at 14.) UMG takes this position even though Vivendi
23 has publicly threatened to sue Plaintiffs for exercising their termination rights and
24 does not dispute the issue is ripe for determination. The notion that UMG will take a
25 position different from its corporate parent defies credulity. But in any case,
26 judicial economy supports joint adjudication of the validity of termination notices
27 which have identical effective dates and will terminate copyrights related to the same
28 property, This Is Spinal Tap. Vivendi’s public threats have also placed at issue the
23
PLAINTIFFS’ CONSOLIDATED OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS
Case 2:16-cv-07733-DMG-AS Document 51 Filed 02/01/18 Page 29 of 30 Page ID #:594

1 future ownership of rights controlled by Vivendi entities. See, e.g., Ray Charles
2 Foundation v. Robinson, 795 F.3d 1109, 1117 (9th Cir. 2015) (holding that plaintiff’s
3 copyright reversion suit was ripe even where certain termination notices were not yet
4 effective because “[i]t would be an inefficient use of judicial resources to compel
5 [plaintiff] to file a different suit after each termination date has passed.”)
6 V. CONCLUSION
7 For the foregoing reasons, Plaintiffs respectfully request that the Court deny
8 Defendants’ motions to dismiss in their entirety or, alternatively, grant Plaintiffs leave
9 to amend to cure any perceived deficiency with the Second Amended Complaint.
10
11 Dated: February 1, 2018 Respectfully submitted,
2029 Century Park East, Suite 800
Los Angeles, California 90067

12
Telephone: 424.204.4400

BALLARD SPAHR LLP


Ballard Spahr LLP

13
14 /s/ Peter L. Haviland
Peter L. Haviland
15
16 Attorneys for Plaintiffs Century of
17 Progress Productions; Christopher Guest;
Rob Reiner Productions; United Heathen;
18 Spinal Tap Productions; Harry Shearer;
19 Rob Reiner; and Michael McKean

20
21
22
23
24
25
26
27
28
24
PLAINTIFFS’ CONSOLIDATED OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS
Case 2:16-cv-07733-DMG-AS Document 51 Filed 02/01/18 Page 30 of 30 Page ID #:595

1 CERTIFICATE OF SERVICE
2 I hereby certify that on February 1, 2018, I caused to be electronically filed a
3 true and correct copy of the foregoing PLAINTIFFS’ CONSOLIDATED OPPOSITION
4 TO DEFENDANTS’ MOTION TO DISMISS AND DECLARATION OF SCOTT HUMPHREYS
5 IN SUPPORT THEREOF through the Court’s CM/ECF system, which will send a
6 notice of electronic filing to all interested parties in the action through their counsel
7 of record as follows:
8
Robert M. Schwartz
9 Victor H. Jih
10 Matthew O. Kussman
IRELL & MANELLA LLP
11 1800 Avenue of the Stars, Suite 900
2029 Century Park East, Suite 800

Los Angeles, California 90067


Los Angeles, California 90067

12
Telephone: 424.204.4400
Ballard Spahr LLP

13 Attorneys for Defendants


Vivendi S.A.; StudioCanal; and
14 Ron Halpern
15
Glenn D. Pomerantz
16 Anjan Choudhury
17 Grant R. Arnow
MUNGER, TOLLES & OLSON LLP
18 350 South Grand Avenue, Fiftieth Floor
Los Angeles, California 90071-3426
19
20 Attorneys for Defendants
Universal Music Group, Inc. and
21 UMG Recordings, Inc.
22
/s/ Peter L. Haviland
23 Peter L. Haviland
24
25
26
27
28

CERTIFICATE OF SERVICE
Case 2:16-cv-07733-DMG-AS Document 51-1 Filed 02/01/18 Page 1 of 2 Page ID #:596

1 Peter L. Haviland (SBN 144967)


havilandp@ballardspahr.com
2 Scott S. Humphreys (SBN 298021)
3 humphreyss@ballardspahr.com
Tanya M. Taylor (SBN 312881)
4 taylortm@ballardspahr.com
BALLARD SPAHR LLP
5 2029 Century Park East, Suite 800
Los Angeles, CA 90067-2909
6 Telephone: 424.204.4400
7 Facsimile: 424.204.4350
8 Attorneys for Plaintiffs
9
UNITED STATES DISTRICT COURT
10
CENTRAL DISTRICT OF CALIFORNIA
11
2029 Century Park East, Suite 800
Los Angeles, California 90067

12
Telephone: 424.204.4400
Ballard Spahr LLP

13 CENTURY OF PROGRESS ) Case No. 2:16-cv-07733-DMG (AS)


PRODUCTIONS; CHRISTOPHER )
14 GUEST; ROB REINER ) DECLARATION OF SCOTT
PRODUCTIONS; UNITED HEATHEN; ) HUMPHREYS IN SUPPORT OF
15 SPINAL TAP PRODUCTIONS; )
) PLAINTIFFS’ CONSOLIDATED
16 HARRY SHEARER; ROB REINER;
and MICHAEL MCKEAN
) OPPOSITION TO DEFENDANTS’
) MOTIONS TO DISMISS
17 )
Plaintiffs, ) Hearing: March 16, 2018
18 )
v. ) Time: 9:30 a.m.
19 )
) Place: Courtroom 8C,
20 VIVENDI S.A.; STUDIOCANAL; ) 350 West 1st Street
RON HALPERN, an individual; ) Los Angeles, CA
21 UNIVERSAL MUSIC GROUP, INC.; )
) Before: Honorable Dolly M. Gee
22 UMG RECORDINGS, INC.; and
DOES 1 through 10, inclusive,
)
)
23 )
)
24 Defendants. )
)
25 )
)
26
27
28
DECLARATION OF SCOTT HUMPHREYS IN SUPPORT OF PLAINTIFFS’
CONSOLIDATED OPPOSITION TO DEFENDANTS’ MOTIONS TO DISMISS
Case 2:16-cv-07733-DMG-AS Document 51-1 Filed 02/01/18 Page 2 of 2 Page ID #:597

1 DECLARATION OF SCOTT HUMPHREYS


2 I, Scott S. Humphreys, declare as follows:
3 1. I am an attorney at the law firm of Ballard Spahr LLP, counsel of
4 record for Plaintiffs in the above-entitled action. I have personal knowledge of the
5 facts set forth in this Declaration and, if called as a witness, could and would testify
6 competently to such facts under oath.
7 2. Attached as Exhibit A is a true and correct copy of the eleven-page
8 letter agreement with Embassy Pictures dated May 7, 1982 referenced in the
9 Second Amended Complaint, excluding the inducement letters and other related
10 exhibits, a complete copy of which was attached to Vivendi’s motion to dismiss
11 filed with the Court on February 28, 2017 (Doc. # 24-2.)
2029 Century Park East, Suite 800
Los Angeles, California 90067

12 3. Attached as Exhibit B is a true and correct copy of a September 9, 1991


Telephone: 424.204.4400
Ballard Spahr LLP

13 agreement with MCA Records, Inc.


14 4. Attached as Exhibit C is a true and correct copy of a “Certificate of
15 Merger of MCA Records, Inc. with and into UMG Recordings, Inc.” executed as of
16 October 15, 1999 and recorded in the Office of the Secretary of State of the State of
17 California on or about April 21, 2000.
18 I declare under penalty of perjury under the laws of the United States of
19 America that the foregoing is true and correct.
20
21 Executed on February 1, 2018 /s/ Scott Humphreys
Scott Humphreys
22
23
24
25
26
27
28
DECLARATION OF SCOTT HUMPHREYS IN SUPPORT OF PLAINTIFFS’
CONSOLIDATED OPPOSITION TO DEFENDANTS’ MOTIONS TO DISMISS
Case 2:16-cv-07733-DMG-AS Document 51-2 Filed 02/01/18 Page 1 of 13 Page ID #:598
Case 2:16-cv-07733-DMG-AS Document 24-2 Filed 02/28/17 Page 2 of 21 Page ID #:231

Ex. A – p. 1
Case 2:16-cv-07733-DMG-AS Document 24-2 Filed 02/28/17 Page 3 of 21 Page ID #:232

Ex. A – p. 2
Case 2:16-cv-07733-DMG-AS Document 24-2 Filed 02/28/17 Page 4 of 21 Page ID #:233

Ex. A – p. 3
Case 2:16-cv-07733-DMG-AS Document 24-2 Filed 02/28/17 Page 5 of 21 Page ID #:234

Ex. A – p. 4
Case 2:16-cv-07733-DMG-AS Document 24-2 Filed 02/28/17 Page 6 of 21 Page ID #:235

Ex. A – p. 5
Case 2:16-cv-07733-DMG-AS Document 24-2 Filed 02/28/17 Page 7 of 21 Page ID #:236

Ex. A – p. 6
Case 2:16-cv-07733-DMG-AS Document 24-2 Filed 02/28/17 Page 8 of 21 Page ID #:237

Ex. A – p. 7
Case 2:16-cv-07733-DMG-AS Document 24-2 Filed 02/28/17 Page 9 of 21 Page ID #:238

Ex. A – p. 8
Case 2:16-cv-07733-DMG-AS Document 24-2 Filed 02/28/17 Page 10 of 21 Page ID #:239

Ex. A – p. 9
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Ex. A – p. 10
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Ex. A – p. 11
Case 2:16-cv-07733-DMG-AS Document 24-2 Filed 02/28/17 Page 13 of 21 Page ID #:242

Ex. A – p. 12
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