Your favorite royalty auditor and forensic accountant is here to make sure California attorneys know of the potential application of the delayed discovery doctrine and the doctrine of estoppel in contesting incoming profit participation accountings or royalty statements, notwithstanding contractual or statutory limitations. I believe such legal doctrines, along with the relevant cases I will highlight, provide compelling grounds for certain creative and licensor clients to challenge such accountings or statements.
Delayed Discovery Doctrine:
The delayed discovery doctrine allows for the tolling or extension of limitations periods when a plaintiff could not have reasonably discovered the existence of a claim. It recognizes that in certain situations, a plaintiff may be unaware of the facts giving rise to a cause of action until a later date.
By applying the delayed discovery doctrine, our clients may be able to argue that they were not reasonably aware of the inaccurate or improper profit participation accountings/statements until a later point, beyond the contractual or statutory limitations. This would provide them with an opportunity to contest and seek redress for the extended period covered by the accountings or statements.
Doctrine of Estoppel:
The doctrine of estoppel, in the context of profit participation accountings and/or royalty statements, can block entertainment companies and licensees from imposing statutory or contractual limitations on audit or other damages claims, if they have previously acted in a manner inconsistent with the position that such claims shall be limited. Estoppel arises when a party's prior conduct or representations reasonably induced another party to rely on those actions to their detriment.
Applying the doctrine of estoppel, our clients may argue that a company's past conduct, representations, or acceptance of actions misled them into believing their rights were being properly accounted for, and as a result, they refrained from auditing or taking legal action within the contractual or statutory limitations periods. This would potentially estop the other party from invoking those limitations to shield themselves from our clients' challenges.
I would like to draw your attention to two notable cases that support certain arguments for delayed discovery and motions to estop a company from imposing limitations on your clients audit and damages claims:
Weatherly v. Universal Music Pub. Group, 23 Cal. Rptr. 3d 157, 125 Cal. App. 4th 913 (Ct. App. 2004).
This case showed that conducting an audit is not necessary to reach the level of diligence required to make delayed discovery claims.
Wind Dancer Production Group v. Walt Disney Pictures, 10 Cal. App. 5th 56, 215 Cal. Rptr. 3d 835 (Ct. App. 2017):
This case involves a dispute over profit participation accountings and the application of the doctrine of estoppel. It establishes that a party's acceptance, authorization, or prior conduct can estop them from using contestability clauses and written amendment clauses to defend against claims challenging the accuracy of profit participation statements, thereby allowing for a longer contestability period.
Given the potential application of the delayed discovery doctrine and the doctrine of estoppel, along with the persuasive precedent set by the mentioned cases, it is crucial that you, as counsel to profit participants or royalty recipients, thoroughly explore these legal doctrines to contest the incoming profit participation accountings/statements for periods longer than the contractual or statutory limitations allow. By leveraging these arguments, we can effectively advocate for our clients' rights and pursue a fair resolution.
I would greatly appreciate the opportunity to discuss these matters further with you. Call my office to clear conflicts for a consultation (424) 248-8866.
And, if you know of other important cases, please comment!
Cumulative accountings refer to a method of calculating financial transactions that spans over an extended period. Instead of treating each individual transaction separately, cumulative accountings aggregate various transactions, creating a comprehensive record. This approach is commonly employed in situations where it is impractical or inefficient to account for each transaction individually.
It is the traditional approach for film and TV industry profit participation accountings as well as joint venture, certain merchandise statements and/or 360-degree accountings in the music and games industries.
See the below Screenshot for an example of a cumulative accounting (for a film to a producer):
If your client's accountings are rendered 90 days following the end of the semiannual period ended June 30, 2023, you usually must render a notice of objection prior to September 30 in order to reserve your client's right to audit his/her/its 2020 H1 statement. Confusing? Yes, it is very confusing!
Call my firm Boschan Corp. for help at (424) 248-8866 or learn more about our royalty audits by clicking here. Please do not wait until September. Your client's rights could expire sooner, depending on the relevant contractual language and statutes.