Case Name: GARY K. WOLF et al., Petitioners, v. THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; WALT DISNEY PICTURES AND TELEVISION, Real Party in Interest
Court: Court of Appeal of the State of California
Jurisdiction: California
Decision Date: 2003-02-25
Citations: 107 Cal. App. 4th 25
Docket Number: No. B157178
Parties: GARY K. WOLF et al., Petitioners, v. THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; WALT DISNEY PICTURES AND TELEVISION, Real Party in Interest.
Judges: 
Reporter: California Appellate Reports, Fourth Series
Volume: 107
Pages: 25–42

Head Matter:
[No. B157178.
Second Dist., Div. Seven.
Feb. 25, 2003.]
GARY K. WOLF et al., Petitioners, v. THE SUPERIOR COURT OF LOS ANGELES COUNTY, Respondent; WALT DISNEY PICTURES AND TELEVISION, Real Party in Interest.
Counsel
Rintala, Smoot, Jaenicke & Rees, J. Larson Jaenicke, Michael B. Garfinkel and Heather M. Noelte for Petitioners.
No appearance for Respondent.
Akin, Gump, Strauss, Hauer & Feld, Martin D. Katz, Edward P. Lazarus and Ann B. Clark for Real Party in Interest.

Opinion:
Opinion
PERLUSS, P. J.
Petitioners Gary K. Wolf and his company Cry Wolf!, Inc. (hereinafter referred to collectively as Wolf), seek a writ of mandate to compel the trial court to vacate its order sustaining, without leave to amend, the demurrer of real party in interest, Walt Disney Pictures and Television (Disney), to Wolfs cause of action for breach of fiduciary duty. At issue is whether one contracting party's right to contingent compensation in the form of a percentage of future revenues in the control of the other contracting party creates a fiduciary relationship in an otherwise arm's length business transaction. Because a contingent entitlement to future compensation within the exclusive control of one party does not make that party a fiduciary in the absence of other indicia of a confidential relationship, we deny the request for a writ of mandate.
Factual and Procedural Background
The operative second amended complaint alleges that Gary Wolf is the author of the novel entitled Who Censored Roger Rabbit? (1981). In or about August 1983, Wolf entered into a written agreement with Disney (the 1983 Agreement) in which Wolf assigned to Disney the rights to the novel and the Roger Rabbit characters. In exchange for acquiring the rights, Disney agreed to pay Wolf a stated, fixed compensation upon execution of the agreement; a percentage of the "net profits," as defined by the parties, from a motion picture based on the novel; and additional, contingent compensation in the amount of 5 percent of any future gross receipts Disney earned from merchandising or other exploitation of the Roger Rabbit characters. The 1983 Agreement provided that Disney was not "under any obligation to exercise any of the rights" granted to it and could assign or license any and all rights granted under the 1983 Agreement as Disney "s[aw] fit."
Disney then developed and coproduced, along with Steven Spielberg's Amblin Entertainment, a motion picture entitled Who Framed Roger Rabbit (1988) based upon Wolfs novel and its characters. After a dispute arose between Wolf and Disney regarding certain terms contained in the 1983 Agreement, the parties entered into a 1989 agreement that confirmed Wolfs entitlement to the contingent compensation set forth in the 1983 Agreement. In addition, the 1989 agreement granted Wolf certain audit rights.
According to the complaint, each time Wolf attempted to exercise its audit rights, Disney failed to provide access to pertinent records. In addition, Disney allegedly underreported revenues it received in connection with the Roger Rabbit characters and failed to disclose the nature of its third party agreements concerning the characters and the compensation received. Wolf alleges such conduct not only constitutes a breach of contract but also amounts to a breach of fiduciary duty. Wolf claims that Disney is a fiduciary because Disney enjoyed "exclusive control over the books, records and information concerning the exploitation [of the Roger Rabbit characters] and the revenue and Gross Receipts Royalties derived therefrom."
The trial court sustained the demurrer to the fiduciary duty claim in the second amended complaint without leave to amend on the ground that "the contract between [Wolf] and [Disney] d[id] not create a fiduciary relationship" as a matter of law. After Wolf petitioned this court for a writ of mandate compelling the trial court to vacate its order sustaining without leave to amend the demurrer to the breach of fiduciary claim, we issued an order to show cause why the requested relief should not be granted.
Contentions
Wolf contends its contingent entitlement to future compensation in the form of a percentage of revenues from Disney's exploitation of the Roger Rabbit characters, together with Disney's exclusive control over the information pertaining to such revenues, necessarily creates a fiduciary relationship.
Discussion
1. Standard of Review
In reviewing an order sustaining a demurrer, we independently review the complaint to determine whether the facts alleged state a cause of action under any possible legal theory. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 967 [9 Cal.Rptr.2d 92, 831 P.2d 317].) We must give the complaint a reasonable interpretation, "treat[ing] the demurrer as admitting all material facts properly pleaded." (Ibid.) If the plaintiff demonstrates a reasonable possibility the complaint can be cured by amendment, it is an abuse of discretion for the trial court to sustain the demurrer without leave to amend. (Ibid.)
2. The Trial Court Did Not Err in Sustaining Without Leave to Amend the Demurrer to the Breach of Fiduciary Duty Cause of Action
A fiduciary relationship is " 'any relation existing between parties to a transaction wherein one of the parties is in duty bound to act with the utmost good faith for the benefit of the other party. Such a relation ordinarily arises where a confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he voluntarily accepts or assumes to accept the confidence, can take no advantage from his acts relating to the interest of the other party without the latter's knowledge or consent. . . .'" (Herbert v. Lankershim (1937) 9 Cal.2d 409, 483 [71 P.2d 220]; In re Marriage of Varner (1997) 55 Cal.App.4th 128, 141 [63 Cal.Rptr.2d 894]; see also Rickel v. Schwinn Bicycle Co. (1983) 144 Cal.App.3d 648, 654 [192 Cal.Rptr. 732] ["'A "fiduciary relation" in law is ordinarily synonymous with a "confidential relation." It is . . . founded upon the trust or confidence reposed by one person in the integrity and fidelity of another, and likewise precludes the idea of profit or advantage resulting from the dealings of the parties and the person in whom the confidence is reposed.' "].)
Traditional examples of fiduciary relationships in the commercial context include trustee/beneficiary, directors and majority shareholders of a corporation, business partners, joint adventurers, and agent/principal. (See, e.g., Evangelho v. Presoto (1998) 67 Cal.App.4th 615, 621 [79 Cal.Rptr.2d 146] [trustee and beneficiary]; Jones v. H.F. Ahmanson & Co. (1969) 1 Cal.3d 93, 108-109 [81 Cal.Rptr. 592, 460 P.2d 464] [controlling shareholder of corporation]; April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 818-819 [195 Cal.Rptr. 421] [joint adventurers]; Michelson v. Hamada (1994) 29 Cal.App.4th 1566, 1580 [36 Cal.Rptr.2d 343] [agent/principal].)
Inherent in each of these relationships is the duty of undivided loyalty the fiduciary owes to its beneficiary, imposing on the fiduciary obligations far more stringent than those required of ordinary contractors. As Justice Cardozo observed, "Many forms of conduct permissible in a workaday world for those acting at arm's length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive is then the standard of behavior." (Meinhard v. Salmon (1928) 249 N.Y. 458, 464 [164 N.E. 545, 546, 62 A.L.R. 1].)
Wolf concedes the complaint is devoid of allegations showing an agency, trust, joint venture, partnership or other "traditionally recognized" fiduciary relationship and further admits that the complaint cannot be amended to state facts alleging such a relationship. Nonetheless, he argues that the absence of a "traditionally recognized" fiduciary relationship is not dispositive on the question whether a fiduciary duty exists. Because Wolfs contractual right to contingent compensation necessarily required Wolf to repose "trust and confidence" in Disney to account for the revenues received, and because such revenues and their sources are in the exclusive knowledge and control of Disney, Wolf claims the relationship is "confidential" in nature and necessarily imposes a fiduciary duty upon Disney, at least with respect to accounting to Wolf for the gross revenues received.
a. A Contingent Entitlement to Future Compensation Does Not, Alone, Give Rise to a Fiduciary Relationship.
Contrary to Wolfs contention, the contractual right to contingent compensation in the control of another has never, by itself, been sufficient to create a fiduciary relationship where one would not otherwise exist. (See, e.g., Downey v. Humphreys (1951) 102 Cal.App.2d 323, 332 [227 P.2d 484] [the obligation to pay money is a debt; "A debt is not a trust" and does not create a fiduciary relationship, "whether [debtor's] liability is certain or contingent"]; Wiltsee v. California Emp. Com. (1945) 69 Cal.App.2d 120, 125, 128 [158 P.2d 612] [employment contract entitling employee to 25 percent of future profits neither created a joint venture nor gave rise to a fiduciary relationship]; New v. New (1957) 148 Cal.App.2d 372, 381-382 [306 P.2d 987] [defendant's contractual obligation to pay former spouse a percentage of future monies received from stock holdings, if any, was no different than obligation to pay fixed monthly sum; though an implied duty of good faith and fair dealing existed in the contract, neither the contingent nature of the debt nor the debtor's exclusive control of monies received created a fiduciary relationship].)
Equally without merit is Wolfs contention that a fiduciary relationship exists because he necessarily reposed "trust and confidence" in Disney to perform its contractual obligation—that is, to account for and pay Wolf the contingent compensation agreed upon in the contract. Every contract requires one party to repose an element of trust and confidence in the other to perform. For this reason, every contract contains an implied covenant of good faith and fair dealing, obligating the contracting parties to refrain from " 'doing anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. . . . '" (Nelson v. Abraham (1947) 29 Cal.2d 745, 751 [177 P.2d 931] (Nelson); New v. New, supra, 148 Cal.App.2d at pp. 382-383.) "Being of universal prevalence, [the implied covenant] cannot create a fiduciary relationship; it affords basis for redress for breach of contract and that is all." (New v. New, supra, 148 Cal.App.2d at pp. 382-383.)
b. The Profit-sharing Aspect of an Agreement Alone Does Not Give Rise to a Fiduciary Relationship.
Wolf cites a number of cases for the proposition that profit- or revenue-sharing agreements are inherently fiduciary in nature. None of them, however, supports its claim. For example, in Nelson, supra, 29 Cal.2d 745, the court addressed whether an agreement to share the profits of the operation of the business, though without an equity interest in the business, gave rise to a fiduciary obligation in the absence of a partnership. Distinguishing an agreement to share profits that "is merely to provide a measure of compensation for services or the use of money" from one that "extends beyond and bestows ownership and interest in the profits themselves" (id. at p. 750), the court held that it was the plaintiff's "effort, skill, management and tact" that was "pertinent in determining the nature of the relationship of the parties and in defining the correlative rights and duties flowing from a contract which gave to the plaintiff a share in the net profits from operation." (Id. at p. 752.) In rejecting the defendant's claim that the plaintiff was not entitled to profits because no partnership had been fonned, and finding instead an obligation to share and to account for profits, the court held that it was "unnecessary to place a precise legal designation on the relationship" because the respective obligations imposed on the parties in the contract showed at least a joint venture giving rise to a fiduciary obligation. (Id. at p. 750.)
Stevens v. Marco (1956) 147 Cal.App.2d 357 [305 P.2d 669] (Stevens), also cited by Wolf, is similarly unavailing. In Stevens, the plaintiff agreed to assign his invention to the defendant, who in turn, agreed to secure patent protection and to give the plaintiff a percentage of the net revenues from the product's sales. (Id. at p. 363.) Their agreement further provided that the plaintiff would continue to work on improvements and assign any interest in such improvements to the defendant, and in turn, would receive a percentage of the revenues from any improvement made by either party. Reversing a nonsuit and explaining that the plaintiff had stated facts potentially establishing a fiduciary relationship thereby shifting the burden of proof, the court observed, "Where an inventor entrusts his secret idea or device to another under an arrangement whereby the other party agrees to develop, patent and commercially exploit the idea in return for royalties to be paid the inventor, there arises a confidential or fiduciary relationship. [Citations.] Indeed, it would be difficult to postulate a relationship more confidential than one in which a secret is imparted to a person professing to have the ability and facilities to develop, patent and exploit it upon his promise to give the inventor a return in the form of royalties." (Id. at p. 373.) At a minimum, the court explained, there were sufficient facts for a jury to find that "the parties were allied in an enterprise similar to that of joint venturers for mutual gain. The royalty agreements between the parties [were] not . . . merely 'a contract of assignment and sale[,' but] plainly indicated that [defendant] was to exploit and develop the use of the patents for their joint profit and that any subsequent improvements made by either would accrue to their mutual benefits (Id. at p. 374, italics added.)
In contrast to the facts in Nelson and Stevens, there are no allegations in the instant complaint of the formation of a joint venture or a relationship "akin" to a joint enterprise. To the contrary, the agreement created a debtor/creditor relationship, expressly providing that in exchange for compensation, both certain and contingent, Disney, as the new owner of the rights, could exploit those rights or not exploit them as it saw fit. Disney was under no obligation to maximize profits from the enterprise or obtain Wolfs approval for its contracts. (Cf. Kirke La Shelle Co. v. Paul Armstrong Co. (1933) 263 N.Y. 79, 82 [188 N.E. 163, 164-165] [agreement gave plaintiff not only right to percentage of proceeds but also approval rights over every subcontract "affecting" plaintiffs rights].) Instead, in authorizing Disney to use those rights as it saw fit, the contract plainly allowed an opportunity for nonmutual profit that is absent in fiduciary relationships. (See Rickel v. Schwinn Bicycle Co., supra, 144 Cal.App.3d at pp. 653-655 [bicycle dealer who had agreement with manufacturer to share proceeds from sales of manufacturer's product was not a fiduciary, where bicycle dealer not obligated to sell manufacturer's products and was free under the agreement to recommend sale of competitor's brands].)
Trying to fit its complaint within the principles articulated in Nelson and Stevens, Wolf argues that a fiduciary duty exists because Disney's exploitation of the characters, if profitable, would inure to the parties' joint benefit. Yet even distribution agreements, negotiated at arm's length, do not create a fiduciary relationship between the product's owner and the distributor even though both parties stand to benefit from the distributor's sales of the product. (Rickel v. Schwinn Bicycle Co., supra, 144 Cal.App.3d at pp. 653-655; Recorded Picture Company [Production] Ltd. v. Nelson Entertainment, Inc. (1997) 53 Cal.App.4th 350, 370 [61 Cal.Rptr.2d 742]; Waverly Productions, Inc. v. RKO General, Inc. (1963) 217 Cal.App.2d 721, 732-734 [32 Cal.Rptr. 73] (Waverly).) If those agreements, where no ownership rights over property are transferred, do not create a fiduciary relationship, neither do contracts, such as the one between Wolf and Disney, involving the sale of all rights to the new owner to exploit as it sees fit. (See Rickel, at pp. 653-655.)
c. Wolf's Contractual Right to an Accounting Does Not Create a Fiduciary Relationship.
Relying on Waverly, Wolf alternatively argues that fiduciary duties exist with respect to Disney's obligation to provide an accounting even though the relationship itself is not otherwise fiduciary in character. In Waverly, a distribution company (RKO) entered into an agreement with a producer to distribute two of the producer's motion pictures. The distributor then entered into sublicensing agreements with foreign distributors. The producer sued RKO, claiming RKO breached its fiduciary duty by subcontracting the distribution duties to foreign distributors who made little or no effort to distribute the films. Rejecting the producer's claim that the distributor was a fiduciary, the court held, "The [distribution] contract is an elaborate one which undertakes to define the respective rights and duties of the parties . A mere contract or a debt does not constitute a trust or create a fiduciary relationship." (Waverly, supra, 217 Cal.App.2d at pp. 731-732.) Noting that the trial court had correctly held that although not a fiduciary, RKO did have an obligation to account to the producer for rentals received from its sublicensees (id. at p. 731), the court also stated its holding in the following language: "We think it clear that RKO was not a fiduciary with respect to the performance of the terms of this contract (except as to accounting for rentals received) and that arguments predicated on the assumption that it was are directed to a false issue." (Id. at p. 734.)
Seizing on the court's parenthetical reference to RKO's obligation to provide an accounting, Wolf argues that Waverly acknowledged the existence of a fiduciary relationship between the distributor and the producer with respect to the accounting that applies equally to issues surrounding Disney's contractual obligation to account to Wolf, even if their contract does not otherwise create a fiduciary relationship. Wolf misapprehends the import of the Waverly court's recognition of the producer's right to an accounting of proceeds received from subdistributors. Either a relationship is fiduciary in character or it is not. Whether the parties are fiduciaries is governed by the nature of the relationship, not by the remedy sought. Waverly recognized' simply that RKO had a duty to account, not that RKO was a fiduciary with respect to its accounting obligation.
The duty to provide an accounting of profits under the profit-sharing agreement in Waverly is appropriately premised on the principle, also expressed in Nelson, that a party to a profit-sharing agreement may have a right to an accounting, even absent a fiduciary relationship, when such a right is inherent in the nature of the contract itself. As the court in Nelson observed, the right to obtain equitable relief in the form of an accounting is not confined to partnerships but can exist in contractual relationships requiring payment by one party to another of profits received. That right can be derived not from a fiduciary duty, but simply from the implied covenant of good faith and fair dealing inherent in every contract, because without an accounting, there may be no way " 'by which such [a] party [entitled to a share in profits] could determine whether there were any profits . . . .'" (Nelson, supra, 29 Cal.2d at p. 751, quoting Kirke La Shelle Co. v. Paul Armstrong Co., supra, 263 N.Y. 79; see also Civic Western Corp. v. Zila Industries, Inc. (1977) 66 Cal.App.3d 1, 14 [135 Cal.Rptr. 915] [action for accounting is equitable in nature and may be brought to compel the defendant to account for money where a fiduciary relationship exists, or " 'where . the accounts are so complicated that an ordinary legal action demanding a fixed sum is impracticable' "].) Here, the parties do not dispute that the contract itself calls for an accounting. That contractual right, however, does not itself convert an arm's length transaction into a fiduciary relationship.
d. The Need to Shift the Burden of Proof in Profit-sharing Cases Does Not Create a Fiduciary Relationship.
Wolfs final argument for finding a fiduciary relationship based on Disney's contingent obligation to pay future compensation rests on the practical assessment that, without such a finding and the corresponding shift in the burden of proof that such a relationship affords (see, e.g., Rosenfeld, Meyer & Susman v. Cohen (1987) 191 Cal.App.3d 1035, 1051 [237 Cal.Rptr. 14]), Wolf will be unable to prove any breach by Disney because all information regarding the proper calculation of contingent compensation is within Disney's exclusive control. Wolf asserts that this total dependence on financial information from Disney demonstrates that it has reposed trust and confidence in the integrity and fidelity of Disney, thereby establishing a fiduciary relationship.
We agree with Wolf that, in contingent compensation and other profit-sharing cases where essential financial records are in the exclusive control of the defendant who would benefit from any incompleteness, public policy is best served by shifting the burden of proof to the defendant, thereby imposing the risk of any incompleteness in the records on the party obligated to maintain them. Ordinarily, "a party has the burden of proof as to each fact the existence or nonexistence of which is essential to the claim for relief or defense that he is asserting," but this rule applies only "[e]xcept as otherwise provided by law." (Evid. Code, § 500.) On occasion courts have held that, " 'Where the evidence necessary to establish a fact essential to a claim lies peculiarly within the knowledge and competence of one of the parties, that party has the burden of going forward with the evidence on the issue although it is not the party asserting the claim.' " (Sanchez v. Unemployment Ins. Appeals Bd. (1977) 20 Cal.3d 55, 71 [141 Cal.Rptr. 146, 569 P.2d 740].)
"In determining whether the normal allocation of the burden of proof should be altered, the courts consider a number of factors: the knowledge of the parties concerning the particular fact, the availability of the evidence to the parties, the most desirable result in terms of public policy in the absence of proof of the particular fact, and the probability of the existence or nonexistence of the fact. In determining the incidence of the burden of proof, 'the truth is that there is not and cannot be any one general solvent for all cases. It is merely a question of policy and fairness based on experience in the different situations.' " (Cal. Law. Revision Com. com., 29B West's Ann. Evid. Code (1995 ed.) foll. § 500, p. 554; Sanchez v. Unemployment Ins. Appeals Bd., supra, 20 Cal.3d at p. 71; see also 1 Witkin, Cal. Evidence (4th ed. 2000) Burden of Proof and Presumptions, § 12, p. 165 ["[B]urden of proof may also be altered [under Evidence Code section 500] where there is a greater or almost exclusive availability of evidence to one party"]; Webster v. Trustees of Cal. State University (1993) 19 Cal.App.4th 1456, 1463 [24 Cal.Rptr.2d 150].)
In cases where the financial records essential to proving the contingent compensation owed are in the exclusive control of the defendant, fundamental fairness, the "lodestar" for analysis under Evidence Code section 500 (Adams v. Murakami (1991) 54 Cal.3d 105, 119 [284 Cal.Rptr. 318, 813 P.2d 1348]), requires shifting the burden of proof to the defendant. In such cases, the essential facts as to the contingency and the amount owed lie in the exclusive knowledge and control of the defendant, placing the defendant in a far better position to prove satisfaction of its payment obligation. (See, e.g., Thomas v. Lusk (1994) 27 Cal.App.4th 1709, 1717 [34 Cal.Rptr.2d 265] ["the burden of proving an element of a case is more appropriately borne by the party with greater access to information"].) Imposing the burden of proof on a defendant to prove it has fulfilled its payment obligations to plaintiff in these types of contract cases, moreover, is consistent with the long-standing rule that a debtor defending a lawsuit to recover money under a promissory note bears the burden of proving that its payment obligation has been satisfied. (See, e.g., Roesch v. De Mota (1944) 24 Cal.2d 563, 569 [150 P.2d 422]; Pacific States Sav. & L. Co. v. Painter (1940) 37 Cal.App.2d 645, 647 [99 P.2d 1103].)
Although we therefore agree that the burden of proving a plaintiff has been paid contingent compensation in accord with the parties' agreement is properly placed on a defendant in exclusive control of essential financial records (thereby imposing on the defendant the risk of any incompleteness in such records), this determination regarding evidentiary burdens does not alter the contractual nature of the parties' relationship. Considerations of fairness and practicality, while relevant to an analysis under Evidence Code section 500, cannot serve to create a fiduciary relationship where one does not otherwise exist.
Disposition
The petition for writ of mandate is denied. Each party to bear his and its own costs.
Woods, J., concurred.
Disney's demurrers to the breach of fiduciary duty claim in the original and first amended complaints were sustained with leave to amend.
Disney notes the parties first entered into an option agreement in 1981. Because the complaint does not refer to the 1981 agreement, our analysis is limited to the 1983 Agreement and subsequent agreements identified in the operative second amended complaint.
Certain limited publishing rights, which are not at issue in the underlying litigation, were exempted from the assignment.
Payments under this provision are not at issue in this litigation.
Like the previous agreement, the 1989 agreement included a provision that stated that "[n]othing herein contained shall be deemed to create a third party beneficiary agreement, nor a partnership or joint venture between [Disney] and [Wolf] . . . nor create a relationship between [Disney] and [Wolf] other than creditor-debtor."
Wolf s breach of contract cause of action based upon Disney's alleged withholding of pertinent records and underreporting of gross receipts is still pending in the trial court.
Similarly the holding in Schaake v. Eagle etc. Can Co. (1902) 135 Cal. 472, 485 [67 P. 759], upon which Wolf also relies, is simply that a breach of contract claim by an inventor who assigned patents to his corporate employer while reserving an interest in profits "is a proper case for an accounting . . . ."