In October 2016, the creators of the classic mockumentary film This Is Spinal Tap filed suit against a group of defendants including the French mass media conglomerate Vivendi S.A. alleging that Vivendi engaged in anticompetitive business activities to defraud the Spinal Tap creators of profits earned from the movie. On August 28th of this year, U.S. District Judge Dolly Gee of the Central District of California allowed the case to move forward by denying a motion filed by defendants to dismiss the case based on the economic loss rule, a rule that otherwise operates to require recovery of damages under contract rather than for an action for fraud. Judge Gee also determined that copyright reversion claims presented a sufficiently ripe controversy for consideration by the court.
The order from Judge Gee decided two motions to dismiss filed by defendants in the case. The first was a motion made by Vivendi subsidiary Universal Music Group (UMG) seeking to dismiss claims from a second amended complaint filed by the plaintiffs, which included trademark and copyright claims, as alleged against that entity. The second motion was filed by Studiocanal, another Vivendi subsidiary, seeking dismissal of the plaintiffs’ claim for fraud.
UMG argued that it was not a party to a 1982 agreement regarding the Spinal Tap creators’ compensation for both the film and music and thus couldn’t be held liable for breaching that contract. Judge Gee granted UMG’s motion with respect to the plaintiffs’ claims on breach of contract and the breach of implied covenant of good faith. The Spinal Tap creators had alleged that UMG, which was responsible for providing accounting for sales of the Spinal Tap soundtrack to Studiocanal, was a successor-in-interest to the original 1982 agreement. However, Judge Gee found that there was no express or implied agreement that UMG assumed the obligations under that original agreement. While the plaintiffs alleged that UMG has third-party-beneficiary status because of its relationship with Studiocanal, the fact that UMG as a third party might have incidentally benefited was not enough to allow the breach of contract and good faith claims to move forward. Judge Gee did grant leave to the plaintiffs amend its complaint to cure deficiencies found in the order.
Studiocanal filed a motion to dismiss the plaintiffs’ claim for fraud under the economic loss rule, which maintains a distinction between damages for breach of contract and damages for tort and can bar a cause of action for fraud. Studiocanal argues that the plaintiffs’ claims arose under the 1982 agreement and nothing more, whereas the Spinal Tap creators alleged that fraudulent actions went above and beyond the obligations behind that agreement. This included allegations that Studiocanal and other defendants engaged in efforts to underreport revenues generated from Spinal Tap by manufacturing false expense deductions and bundling Spinal Tap with unsuccessful film and music rights in accounting. Because this resulted in harm distinct from a breach of contract, Judge Gee determined that the plaintiffs’ claims were not barred by the economic loss rule because of an intentional tort exception. Judge Gee did grant UMG’s motion to dismiss the fraud claim against it because UMG did not directly make misrepresentations to the plaintiffs, but she also granted leave to the plaintiffs to amend the complaint to cure this deficiency as well.
Judge Gee also denied a motion filed by UMG to dismiss the plaintiffs’ claim for a declaratory judgment of copyright reversion regarding the Spinal Tap film. UMG argued that it hadn’t taken a position concerning its sound recording copyrights whereas Studiocanal had threatened challenges to the plaintiffs’ termination rights, and that the effective date of the termination notices is in March 2019. However, Judge Gee found that UMG had not conceded the validity of the termination notices nor had it made clear that it had no intention of challenging the notices. The actual controversy ongoing between the plaintiffs and Studiocanal supported the request for declaratory judgment on the copyrights held by UMG as reversion would allow the plaintiffs to redress the injury suffered from reduced royalties.
After Judge Gee’s order was filed, Spinal Tap co-creators Harry Shearer, Christopher Guest, Michael McKean and Rob Reiner announced that they engaged Stanton “Larry” Stein, head of Rust August & Kabat’s media and entertainment group, as new lead counsel in the Vivendi litigation. Shearer also offered the following comment regarding Judge Gee’s order:
“We are pleased with the decision in our ongoing litigation involving the film ‘This is Spinal Tap,’ which allows all of our claims against Vivendi, StudioCanal and Ron Halpern, including the fraud claim, to proceed. We are also confident that we will adequately amend our claims against the defendant Universal Music, as specified by Judge Gee’s order, so we can move forward with those as well. The Court’s ruling makes clear that we can pursue damages both for breach of contract and fraud, including punitive damages, based on the defendants’ failure to properly account to us for our profits in connection with ‘This is Spinal Tap.’ It is equally important that we can pursue our right to recapture our copyright interests and other intellectual property rights in connection with the Spinal Tap film and music, so that we can control our own creative product and benefit from it, as we should have all along. We look forward to finally getting our day in court, at a trial, with the evidence that to date Vivendi has tried to hide from us.”