Opinion ID: 663725
Heading Depth: 2
Heading Rank: 2

Heading: Issue of Good Faith/Fair Dealing

Text: 27 Leisure Time also contends that, even if the Academy claim materially affects Tri-Star's rights, Tri-Star is not entitled to terminate the Distribution Agreement because it was obligated to compel its sister company, CPII, to license the use of Bridge for Return under both its duty to exercise good faith business judgment pursuant to paragraph 8(b) of the Distribution Agreement and under the doctrine of good faith and fair dealing inherent in contracts pursuant to California law, which applies in this case pursuant to a choice of law clause in the Distribution Agreement. See Foley v. Interactive Data Corp., 47 Cal.3d 654, 254 Cal.Rptr. 211, 227, 765 P.2d 373, 389 (1988). Leisure Time further argues that Tri-Star's lack of good faith also is evidenced by Tri-Star's refusal to proceed with distribution only one month after attempting to persuade Academy to accept the title change and disclaimer as a compromise. We disagree. 28 Tri-Star has no duty or obligation to compel its sister company, CPII, to provide a license for Leisure Time. CPII, not Tri-Star, owns the rights to Bridge. Despite Leisure Time's contention that Tri-Star can compel the issuance of a license, it fails to offer any concrete evidence that Tri-Star has a right to dictate the licensing of any title owned by CPII. Cf. Mellon Bank, N.A. v. Metro Communications, Inc., 945 F.2d 635, 643 (3d Cir.1991) (cert. denied, Committee of Unsecured Creditors v. Mellon Bank, N.A., --- U.S. ----, 112 S.Ct. 1476, 117 L.Ed.2d 620 (1992) related corporations entitled to presumption of separateness); Crown Cent. Petroleum Corp. v. Cosmopolitan Shipping Co., 602 F.2d 474, 476 (2d Cir.1979) (absent a showing of fraud or bad faith, related corporations entitled to presumption of separateness). Moreover, we do not believe that CPII has an unrestricted right to grant a license in derogation of Academy's interest. See Cortner v. Israel, 732 F.2d 267, 272 (2d Cir.1984) (copyright holder may be liable for breach of implied obligation not to use title in a way that deprives party of right to royalties); Van Valkenburgh, Nooger & Neville, Inc. v. Hayden Publishing Co., 30 N.Y.2d 34, 330 N.Y.S.2d 329, 334, 281 N.E.2d 142, 145 (N.Y.) (activity of publisher that harms author and lessens royalties may justify breach of contract action), cert. denied, 409 U.S. 875, 93 S.Ct. 125, 34 L.Ed.2d 128 (1972). Indeed, in rejecting the proffered compromise set forth in the November 2, 1988 letter from Jacobi, Academy threatened to sue and to join Tri-Star and Columbia as defendants if Return was released with the words River Kwai in the title. We conclude that Tri-Star merely exercised its contractual right to terminate the Distribution Agreement when confronted by an Academy claim which materially threatened its rights under the Agreement. Tri-Star bargained for the right to protect itself from having to litigate a colorable claim and, in exercising that right, it cannot be said to have acted in bad faith in this case.