Court Opinion

ID: 9746924
Source: CourtListenerOpinion
Date Created: 2023-08-27 14:45:40.454483+00
Date Added: 2024-06-11T07:25:18.348235
License: Public Domain

*37JOHNSON, J., Concurring and Dissenting.
I agree with that portion of part 2.d. of the majority opinion suggesting the burden of proof will shift to Disney with respect to whether it accurately reported and paid Wolf the full royalties owed for its exploitation of Wolfs characters. In my view, this holding as a practical matter cures much of Wolfs concern about the difficulty of proving the remainder of his case in the face of possible lost, destroyed, or inadequate records.
I write separately, however, to register my disagreement with the majority opinion affirming the trial court’s order sustaining a demurrer to Wolfs breach of fiduciary duty cause of action. This ruling is based on a finding Disney owed no fiduciary duty, as a matter of law, to accurately and honestly account to Wolf for his 5 percent share of the gross receipts attributable to the company’s exploitation of Wolfs intellectual product. Unavoidable circumstances already have delayed unduly the issuance of our opinion, and also required decision by a partially reconstituted panel in this writ proceeding. I thus will keep this dissent brief, even though it raises some fundamental issues.
I tend to agree with the majority opinion’s conclusion Waverly Productions, Inc. v. RKO General, Inc.1 is too slender a reed on which to hang a decision holding Disney had a fiduciary duty to Wolf with respect to its responsibility to provide an honest and accurate accounting. The reference in the Waverly opinion is ambiguous and lacks an articulated rationale. I am less persuaded by the attempt to distinguish other authorities tending to support Wolfs position, however.2
*38But in any event, there remains the question whether there is or should be such a fiduciary duty, and under what circumstances, when two parties enter into a profit-sharing relationship but one of those parties retains full control over the books. This issue, in turn, depends on whether the other party’s right to audit the books provides a strong enough incentive to ensure an honest report of those receipts and profits. Or does it require imposition of a fiduciary duty and the threat of the attendant remedies to encourage a proper performance of this critical responsibility?
The majority opinion implies there can be no fiduciary duty to keep honest and accurate books—and none of the traditional remedies enforcing such a duty—unless the relationship between the two parties is a fiduciary *39relationship for all purposes. (Maj. opn., ante, at p. 34.) The majority argues the relationship defined in this contract falls short of being a joint venture, largely because Disney lacks a contractual duty to exploit any of Wolf’s figures or other intellectual property, and thus does not qualify as a fiduciary relationship. Consequently, according to the majority rationale, Disney owes no fiduciary duty to maintain honest accounts even as to the exploitations of Wolf’s intellectual property it does choose to undertake. (Maj. opn., ante, at pp. 31-33.)
I differ with the majority opinion on both counts.
First, in my view, evidence may develop establishing Disney and Wolf were involved in a joint venture—at least, a contingent joint venture and one which Disney elected to activate—despite any language in the contract to the contrary. Intellectual property is not the same as “widgets” and cannot be treated as such. Whether a joint venture exists is to be determined from the statements and conduct of the parties, not just the written contract they may have executed as part of the venture.3 Thus, with rare exceptions, this issue cannot be decided on demurrer based on an interpretation of such a written contract.
Furthermore, no amount of contractual disclaimers avowing this was a debtor-creditor relationship instead of a joint venture can turn it into something it was not. As this court held 20 years ago, “[T]he conduct of the parties may create a joint venture despite an express declaration to the contrary.”4 So if it hops like a rabbit and has big floppy ears like a rabbit and eats carrots like a rabbit, Roger is a rabbit—even if the contract says he is a duck (or a mouse).
This arrangement had some key attributes of a joint venture, at least once Disney elected to make the movie starring “Roger Rabbit,” and then to exploit the characters in other ways.5 Later in the proceeding, evidence may emerge demonstrating that once Disney decided to make the movie and *40exploit the characters Wolf created, the two of them embarked on a joint venture. If so, Disney would owe a fiduciary duty to its co-adventurer even though the terms of the written contract did not define a joint venture and despite the fact Disney had managed to insert contract language asserting this was only to be a debtor-creditor relationship.
Second, even if the arrangement ultimately fails to qualify as a true joint venture that does not end the matter. Disney does not necessarily escape a fiduciary duty to honestly and accurately account to the author of the intellectual property for the receipts earned from the intellectual property on which that author’s compensation is based. Under the terms of this contract, Disney undertook the accounting responsibility for the author as well as itself—a responsibility arguably carrying with it a fiduciary duty to accurately and honestly report the true receipts and profits. Accountants, like lawyers, owe a fiduciary duty to their clients.* ****6 Accountants also owe a duty not to supply negligently or intentionally false information to nonclients who the accountant knows with substantial certainty will rely on that information in their dealings with the client.7
Disney may not be an accounting firm, but it employs the accountants and bookkeepers who perform the accounting function Disney contracted to carry out. In a very real sense, Disney is Wolfs accountant with respect to the complete and accurate and honest maintenance of the books as to any transactions involving exploitation of Wolfs characters. That itself may create a fiduciary relationship. (Or, alternatively Disney is simultaneously occupying the roles of both accountant and client. In that case, in its role as accountant it is duty bound not to supply negligently or intentionally false information to Wolf, who obviously is a third person known to be relying on that information in its dealings with Disney in the latter’s role as client.)
In either event, contrary to a bank-depositor relationship or many other relationships where one business entity maintains records for another, in this *41instance Wolf necessarily depended entirely on Disney’s accounting department and the other Disney employees providing raw information to that department. He was not able to “reconcile” his checkbook based on his own records, or the equivalent. Nor was Wolf in a position to verify the accuracy and completeness of the raw data—the true gross receipts from exploitation of his characters—purportedly recorded in the reports he received. Even if the contract by its terms is ambiguous on this issue, evidence may well develop during the course of these proceedings demonstrating Disney’s promise to perform this function created a fiduciary relationship—in this instance, a fiduciary relationship limited to the accounting aspect of the total relationship between Disney and Wolf.
Certainly, Disney’s contractual duty to maintain the books required to accurately record the moneys it receives from exploitation of Wolfs characters possesses many of the attributes that have led the courts to characterize other relationships as fiduciary in nature. As one leading commentator wrote in describing what justifies the imposition of fiduciary duties: “Because fiduciaries manage or have some control over very substantial property interests of others, they have the potential to inflict great losses on those property owners. [The] economic interests of fiduciaries are frequently substantially affected by the discretionary decisions they make on behalf of others . . . As a result. . . fiduciaries have unusually great opportunities to cheat without detection and they have unusually great incentives to do so. Moreover, the relative costs which their cheating may impose on those whose property they manage are frequently much greater than the relative costs that can be imposed without detection or remedy in simpler contractual exchanges.”8
“Fiduciary duties and conflict of interest regulation both provide standardized terms to minimize transaction costs and impose unwaivable quality requirements which prevent fiduciaries from taking unfair advantage of the superior bargaining power resulting from their specialized information and skills.”9
The opportunity and temptation to cheat are present in the relationship here just as much as in the trustee-beneficiary, partnership, or other traditional fiduciary relationships. Wolf must depend entirely on the honesty and accuracy of Disney in the performance of the accounting function Disney is carrying out for both of them. Every sale of a toy “Roger Rabbit” that Disney fails to include in its report of receipts from exploitation of *42Wolfs characters means less money for Wolf and more profit for Disney. The conflict of interest inherent in this relationship, therefore, is more than apparent. So there appears to be just as great a need to impose a fiduciary duty on the performance of that accounting responsibility in order to discourage Disney “from taking unfair advantage of’ its special position as there is for partners who manage a partnership business or for trustees who keep the books for a beneficiary’s property interests.
Almost 70 years ago in the midst of a depression and contemplating the ruins of a collapsed economy, the nation’s future Chief Justice, Harlan Stone, made a powerful argument for imposing fiduciary duties where one party depends on the honest performance of another who may have a selfish motive for doing otherwise.
“I venture to assert that when the history of the financial era which has just drawn to a close comes to be written, most of its mistakes and its major faults will be ascribed to the failure to observe the fiduciary principle, the precept as old as holy writ, that ‘a man cannot serve two masters’. More than a century ago equity gave a hospitable reception to that principle and the common law was not slow to follow in giving it recognition. No thinking man can believe that an economy built upon a business foundation can permanently endure without some loyalty to that principle.”10
Recent events have made Justice Stone’s admonition all the more relevant not only to the current business world, but also to the courts and especially in regard to our decisions whether to impose fiduciary duties on certain business relationships. On the record before our court in this writ proceeding, I am not quite prepared to determine Disney assumed a fiduciary duty to maintain honest and accurate records as to its exploitation of Wolfs characters. But I am close to such a conclusion. More importantly, I am unprepared at this early stage of the proceedings, in the absence of evidence before the trial court, to determine no such fiduciary duty exists as a matter of law. Accordingly, I would issue the writ and reverse the order sustaining the demurrer, thus reserving that question for another day.
On March 20, 2003, the opinion was modified to read as printed above. Petitioners’ petition for review by the Supreme Court was denied May 14, 2003. George, C. J., and Brown, J., did not participate therein.

Waverly Productions, Inc. v. RKO General, Inc. (1963) 217 Cal.App.2d 721 [32 Cal.Rptr. 73].

For instance, in a modification to its original opinion, the majority opinion characterizes Schaake v. Eagle etc. Can Co. (1902) 135 Cal. 472 [67 P. 759], as merely holding an employee who assigned his patents to his employer in return for a percentage of the profits is entitled to an accounting. But the Supreme Court went beyond that to declare a fiduciary relationship had been created. “These patents and improvements were assigned to the corporation by the plaintiff, but reserving an interest in certain profits which might be realized by the corporation. The relation thus created was fiduciaiy, and as to plaintiffs share or part of the profits realized the corporation was a trustee.” (Id. at p. 485, italics added.) In essence, the Supreme Court ruled the plaintiff inventor had a right to an accounting of net profits earned on his inventions specifically because the corporation exploiting those inventions owed him a fiduciary duty. The accounting was merely a remedy flowing from the duty, but not necessarily the only remedy or other consequence flowing from that duty. Admittedly, lesser, nonfiduciary relationships sometimes also can create a right to the remedy of an accounting. But the Supreme Court in Schaake expressly founded the right to that remedy on a finding the assignment of the plaintiffs intellectual property to a corporation and giving the corporation the right to exploit that intellectual property in return for a share of the profits imposed a fiduciary duty on the corporation. This fiduciary duty, in turn, made the corporation a trustee of the intellectual property holder’s share of the profits. I am not *38persuaded the relationship between the intellectual property holder here, Wolf, and the corporation contracting to exploit his intellectual property, can be properly distinguished from the relationship found sufficient to create a fiduciary duty in Schaake, which furthermore would turn Disney into a trustee of Wolf’s share of the proceeds from exploitation of his characters. Similarly, it is questionable whether the majority opinion successfully distinguishes Nelson v. Abraham (1947) 29 Cal.2d 745 [177 P.2d 931] and Stevens v. Marco (1956) 147 Cal.App.2d 357 [305 P.2d 669]. Wolf is not suing Disney for failing to exploit Roger Rabbit and his other characters, or for having pushed Mickey Mouse and Donald Duck characters more vigorously than his characters. As a result, such differences as may exist between the relationships described in the Nelson and Stevens cases and the relationship here seem largely irrelevant as to the fiduciary duty to accurately and honestly report Wolf’s share of the earnings on the gross sales from exploitation of his characters. (Incidentally, in neither Nelson nor Stevens did the defendant promise not to contract with other persons or products that might compete with the plaintiff.) Both Nelson and Stevens identified a number of factors which can combine to create a fiduciary duty flowing from one party to another. Most of those factors are present here, while some are not. But significantly, some of the factors mentioned in Stevens are not present in Nelson, and vice versa. Yet each found a relationship sufficient to create a fiduciary duty, including a duty to honestly and accurately account to the plaintiff for his share of the profits. Notably, contrary to the majority’s characterization of these decisions, each of these courts found such a relationship without determining it was limited to a joint venture or even an “enterprise similar to a joint venture.” Furthermore, each held these profit-sharing relationships were enough to impose a duty on the party keeping the books to honestly and accurately report and to pay over the other party’s share of the proceeds. In Stevens, for example, after pointing out all the indicia existed to sustain a finding of a fiduciary relationship without a particular label, the court went on to state: “Furthermore, the jury might also have found, . . . that the parties were allied in an enterprise similar to that of joint venturers for mutual gain.” (Stevens v. Marco, supra, 147 Cal.App.2d at p. 374, italics added.) The opinion then marshals the evidence supporting that alternative finding. But the finding of a joint venture or an enterprise similar to a joint venture was not essential to its holding. And Nelson expressly disavows the need for any label. “It is, however, unnecessary to place a precise legal designation on the relationship between the parties. The present controversy is between the parties to a contract by which the plaintiff admittedly became entitled to a one-third share of the net profits from the operation without acquiring an interest in the business.” That was enough to impose a fiduciary duty to honestly and accurately report the net profits “without the necessity for designating their relationship by a particular label.” (Nelson v. Abraham, supra, 29 Cal.2d at p. 750.)

April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 819 [195 Cal.Rptr. 421] (neither characterization of holder of intellectual property as “independent contractor” in his contract with a television station nor the integration clause in that contract foreclosed parol evidence of oral statements or conduct from which a trier of fact could infer the existence of a joint venture).

April Enterprises, Inc. v. KTTV, supra, 147 Cal.App.3d at page 820, citing Universal Sales Corp. v. California etc. Mfg. Co. (1942) 20 Cal.2d 751, 765 [128 P.2d 665].

The facts of this case, as best we know them at this stage, resemble April Enterprises, Inc. v. KTTV, supra, 147 Cal.App.3d 805. That case involved what this court held could prove to be a contingent joint venture between a television station and the ventriloquist who had created several characters and starred in the station’s series based on those characters. The contract provided that if the station managed to exploit the filmed series of television shows via syndication or otherwise the ventriloquist would receive a percentage of the revenues. This court deemed the arrangement could qualify as a joint venture, depending on the *40evidence produced at trial, despite the absence of a promise or affirmative duty on the part of the station to exploit the ventriloquist’s past television shows and even though the ventriloquist was not to share in any losses that might be incurred in the attempt to exploit his shows. Some years after the contract was signed the station negligently or deliberately destroyed the only copies of the filmed programs. The published opinion reversed a judgment on the pleadings and nonsuit the trial court had granted in the station’s favor. In a subsequent unpublished opinion, this division upheld a multimillion-dollar jury verdict based on the station’s breach of the fiduciary duty it owed its joint adventurer, the ventriloquist. Although the facts are not identical to the Wolf-Disney arrangement, the parallels are fairly close.

See generally 6 Witkin, Summary of California Law (9th ed. 1988) Torts, section 805, page 157 (“Like other professionals . . . , accountants ‘have a duty to exercise the ordinary skill and competence of members of their profession, and a failure to discharge that duty will subject them to liability for negligence.’ [Citation.]”).

Bily v. Arthur Young & Co. (1992) 3 Cal.4th 370, 414 [11 Cal.Rptr.2d 51, 834 P.2d 745, 48 A.L.R.5th 835].

Anderson, Conflicts of Interest: Efficiency, Fairness and Corporate Structure (1978) 25 UCLA L.Rev. 738, 758, italics added.

Anderson, Conflicts of Interest: Efficiency, Fairness and Corporate Structure, supra, 25 UCLA L.Rev. at page 759, italics added.

Stone, The Public Influence of the Bar (1934) 48 Harv. L.Rev. 1, 8-9.