Opinion
Case No. CV 00-13545 AHM (RCx)
November 5, 2001
ORDER GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT
INTRODUCTION
This matter is before the Court pursuant to Plaintiffs' Motion for Summary Judgment. Plaintiffs, a group of directors and their collective bargaining representative, the Directors Guild of America, Inc. ("DGA"), have sued Defendant Millennium Television Network ("Millennium") to confirm an arbitrator's award against Millennium. Plaintiffs have also sued Defendants Frontier Insurance Company ("Frontier") and NAC Reinsurance Corporation ("NAC") for breach of payment bond. In their summary judgment "motion, Plaintiffs argue Frontier and NAC are liable for the arbitration award obtained by Plaintiffs against Defendant Millennium Television Network ("Millennium"). The arbitration award was based on Millennium's failure to pay Plaintiffs pursuant to several individual contacts that obligated the plaintiffs to perform work for a television broadcast ("Telecast") scheduled for New Year's Eve 1999. The Telecast was ultimately canceled by Millennium before the plaintiffs performed any work on the program. The source of Frontier's and NAC's potential liability is a bond executed between Millennium and Frontier and NAC on May 20, 1999. (Ury Decl., Ex. 1; Dudley Decl, Ex. 1). The bond makes both NAC and Frontier liable as co-sureties to "any and all persons, companies, or corporations who perform work or labor on" the "Millennium World Broadcast" scheduled for December 31, 1999. (Ury Decl., Ex. 1; Dudley, Decl., Ex. 1).
Millennium is no longer in existence and has not paid the amounts due the plaintiffs as a result of the arbitration award. (Harris Decl. ¶ 7-8).
In opposition, Defendant NAC argues the express terms of the bond do not encompass the plaintiffs' arbitration award against Millenium. NAC contends the bond only covers payment for those "who perform work or labor on" the Telecast. As a result, NAC argues, the bond does not cover Plaintiffs' arbitration award because it was based on work never actually performed due to the cancellation of the Telecast. (Opp'n. at 6). In addition, NAC argues that it is not bound by the arbitration award obtained by the plaintiffs against Millenium, and that Plaintiffs failed to mitigate their damages following the cancellation of the telecast. (Opp'n. at 3).
Defendant Frontier is now subject to an Order of Rehabilitation issued by the Supreme Court of New York. The order stays all actions involving Frontier as of October 10, 2001. (Dudley Decl., Ex. 3). For this reason, the opposition was filed solely on behalf of Defendant NAC. (Opp'n. at 5).
Because the Court finds that the plaintiffs' "performed work" or "labored on" the Telecast, the express terms of the bond encompass the amounts owed the plaintiffs by Millennium. As a result, the Court grants Plaintiffs' Motion for Summary Judgment.
FACTS
The relevant facts are not significantly disputed by the parties. Plaintiffs are directors retained by Millennium to work on its planned live broadcast scheduled for December 31, 1999. (Def.'s Statement of Genuine Issues ("SGI") ¶ 6-7). To obtain the necessary capital for the broadcast, Millennium's backers required it to obtain a performance and payment bond. On May 20, 1999, Millennium executed Payment Bond no. 143698 with Defendants Frontier and NAC. (SGI ¶ 8). The Bond states that Millennium, Frontier, and NAC are "jointly and severally held and firmly bound, unto any and all persons, companies, or corporations who perform work or labor on . . . the event or services hereinafter mentioned, in the sum or Ten Milhon and no/100 Dollars." (SGI ¶ 8). The Bond further states that, "If said Principal [Millennium] shall fail to pay for any . . . work or labor done thereon of any kind, the said Co-Surety, Frontier Insurance Company and NAC Reinsurance Corporation, will pay the same amount . . . and this bond shall inure to the benefit of any and all persons, companies, and corporations entitled to file claims . . ." (SGI ¶ 8).
Due to a variety of unspecified factors, Millennium's Telecast scheduled for December 31, 1999 was cancelled on or about December 23, 1999. (SGI 11). The cancellation occurred prior to the time Plaintiffs were scheduled to work to the Telecast. Since that time, Millennium has failed to pay Plaintiffs any compensation due under the terms of their contracts. (SGI ¶ 11).
Pursuant to the applicable collective bargaining agreements between the plaintiffs and Millennium, all disputes regarding compensation are subject to arbitration. (SGI ¶ 12). Pursuant to these agreements (labeled by Plaintiffs as the "Basic Agreement" and "Freelance Live and Tape Television Agreement" ("FLTTA")), the DGA filed a claim against Millennium for the monies owed the individual plaintiffs. (SGI ¶ 13). On October 23, 2000, the arbitration hearing on the matter was held. (SGI ¶ 13). Millennium did not appear at the arbitration. (SGI ¶ 13). The arbitrator held that Millennium owed each individual Plaintiff a specific amount in compensation and pension/health contributions. (SGI ¶ 14). The total amount owed by Millennium to Plaintiffs was $64,846.13 in compensation and $14,864.65 in pension/health contributions. (SGI ¶ 14). The arbitrator also held that late charges of 1.5% per month would accrue on the compensation owed from January 4, 2000 until the obligations were paid in full. (Harris Decl., Ex. 7). In addition, late charges of 1 % per month or liquidated damages of 20%, whichever is greater, would accrue on the pension/health payments until paid in full. (Harris Decl., Ex. 7).
Because Millennium failed to pay any amount due under the arbitration award, DGA made a written demand for the amount on Co-Sureties Frontier and NAC on November 9, 2000. (SGI ¶ 16). Both Frontier and NAC continue to refuse to pay the amounts owed by Millennium. (SGI ¶ 16). On May 14, 2001, a default was entered by the Court Clerk against Millennium in this action.
MOTION STANDARD
Federal Rule of Civil Procedure 56(c) provides for summary judgment when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." The moving party bears the initial burden of demonstrating the absence of a "genuine issue of material fact for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986). A fact is material if it could affect the outcome of the suit under the governing substantive law. Id. at 248. The burden then shifts to the nonmoving party to establish, beyond the pleadings, that there is a genuine issue for trial. Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986).
"When the party moving for summary judgment would bear the burden of proof at trial, it must come forward with evidence which would entitle it to a directed verdict if the evidence went uncontroverted at trial. In such a case, the moving party has the initial burden of establishing the absence of a genuine issue of fact on each issue material to its case." C.A.R. Transportation Brokerage Co., Inc. v. Darden Restaurants, Inc., 213 F.3d 474, 480 (9th Cir. 2000) (citations omitted). In contrast, when the non-moving party bears the burden of proving the claim or defense, the moving party can meet its burden by pointing out the absence of evidence from the non-moving party. The moving party need not disprove the other party's case. See Celotex, 477 U.S. at 325. Thus, "[s]ummary judgment for a defendant is appropriate when the plaintiff `fails to make a showing sufficient to establish the existence of an element essential to [his] case, and on which [he] will bear the burden of proof at trial.'" Cleveland v. Policy Management Sys. Corp., ___ U.S. ___, 119 S.Ct. 1597, 1603, 143 L.Ed.2d 966 (1999) ( citing Celotex, 477 U.S. at 322).
When the moving party meets its burden, the "adverse party may not rest upon the mere allegations or denials of the adverse party's pleadings, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial." F. R. Civ. P. 56(e). Summary judgment will be entered against the non-moving party if that party does not present such specific facts. Id. Only admissible evidence may be considered in deciding a motion for summary judgment. Id.; Beyene v. Coleman Sec. Serv., Inc., 854 F.2d 1179, 1181 (9th Cir. 1988).
"[I]n ruling on a motion for summary judgment, the nonmoving party's evidence `is to be believed, and all justifiable inferences are to be drawn in [that party's] favor.'" Hunt v. Cromartie, ___ U.S. ___, 119 S.Ct. 1545, 1551-52, 143 L.Ed.2d 731 (1999) ( citing Anderson, 477 U.S. at 255). But the non-moving party must come forward with more than "the mere existence of a scintilla of evidence." Anderson, 477 U.S. at 252. Thus, "[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citation omitted).
DISCUSSION
I. THE TERMS OF THE BOND DETERMINE THE LIABILITY OF NAC.
Both sides fundamentally agree that whether NAC is liable for the amount owed the plaintiffs by Millennium is determined by the terms of the bond executed between NAC and Millennium. (Pl.'s Mot. at 1; Opp'n. at 6). The plaintiffs do not argue that the arbitration award against Millennium is automatically binding against NAC as surety. (Reply at 4). Furthermore, Plaintiffs do not contend that the terms of the bond incorporate those of the collective bargaining agreement that governed the dispute between Plaintiffs and Millennium. (Reply at 5). In addition, other than arguing that two individual plaintiffs failed to mitigate their damages ( infra), NAC's opposition does not question the findings of the arbitrator as to Millennium's liability to the plaintiffs. As a result, the Court finds that the express terms of the bond executed between Millennium and NAC will determine whether NAC is liable for the arbitration award against Millennium.
A. The Terms of the Bond
The bond executed between Millennium and NAC on May 20, 1999 binds NAC as Co-Surety "unto any and all persons, companies, or corporations who perform work or labor on . . . the event or services hereinafter mentioned, in the sum of Ten Milhon and no/100 dollars . . ." (Ury Decl, Ex. 1; Dudley Decl., Ex. 1). In addition, the bond states,
"THE CONDITIONS OF THIS OBLIGATION ARE SUCH THAT, WHEREAS, the above bounden Principal [Millennium] has a Production Agreement for airing the 24-hour `Millennium World Broadcast,' on or about December 31, 1999 (hereinafter called the Telecast). NOW, THEREFORE, if the said Principal, shall fail to pay for any materials, provisions, provender or other supplies or for the use of implements or equipment, used or to be used, in, upon, for, or about, the production of said Telecast or for any work or labor done thereon of any kind, the said Co-Surety, Frontier Insurance Company and NAC Reinsurance Corporation, will pay the same amount not exceeding the sum named upon this bond, and this bond shall inure to the benefit of any and all persons, companies, and corporations entitled to file claims under which the said contract, subcontract or purchase order was awarded to claimant for the Telecast as aforesaid by the Principal."
(Ury Decl., Ex. 1; Dudley Decl., Ex. 1 (emphasis added)).
B. The Terms of the Bond Encompass the Plaintiffs' Arbitration Award
Plaintiffs argue that NAC is liable for the arbitration award against Millennium because the express terms of the bond require NAC to pay for "any work or labor done thereon [the Telecast] of any kind . . ." (Pl.'s Mot. at 11). Plaintiffs acknowledge that the Telecast was canceled before they were required to begin work. However, Plaintiffs argue that, for directors, the work "performed" or labor "done" consists not only of the performance of certain services on a particular day, but also the act of refraining from performing work for anyone else during the period of the contract. (Pl.'s Mot. at 11). Plaintiffs contend that this is defined as the "pay or play" principle. (Pl.'s Mot. at 3). According to Plaintiffs, the "pay or play" principle reflects a bilateral promise between the employee and the employer that is integral to the entertainment industry. For the employer, the "pay or play" principle requires the employer to honor its promise to pay the agreed salary for the term of the guaranteed period whether or not the program or film is actually produced. (Williams Decl. ¶ 5, Ex. 1). In exchange, the employee-director is required to remain available for the scheduled dates by foregoing other employment options. (Pl.'s Mot. at 3). As a result, Plaintiffs argue, despite the fact that the Telecast was cancelled before filming began, the terms of the bond nonetheless encompass the arbitration award because it was based on the concept that the plaintiffs "performed" work on the Telecast.
Plaintiffs have produced substantial evidence that the "pay or play" principle is the customary nature of work in the entertainment industry. Both the applicable collective bargaining agreement (the "Basic Agreement") and the FTTLA incorporate "pay or play" principles. (Williams Decl., Ex. 1 at 6; Harris Decl., Ex. 3 at 24). In addition, Millennium specifically agreed to be bound by the terms of the Basic Agreement in a document dated September 28, 1999. (Harris Decl., Ex. 1).
In opposition, NAC argues that it is not liable for the arbitration award against Millennium because the express terms of the bond obligate NAC to pay only those persons or companies who "perform work or labor on" the Telecast. (Opp'n. at 6). Due to the cancellation of the Telecast, NAC argues, Plaintiffs did not perform any work or labor on the production of the Telecast. (Opp'n. at 6). Furthermore, NAC contends that because the bond itself does not mention the "pay or play" arrangements between Plaintiffs and Millennium, such terms should not be read into the bond to hold NAC liable for the arbitration award against Millennium. (Opp'n. at 7).
The defendant is correct in stating that a surety cannot be held beyond the express terms of the contract. United States Leasing Corp. v. DuPont, 69 Cal.2d 275, 284 (1968). However, it is also clear that a surety contract is to be interpreted by the same rules used in construing other contracts, "with a view towards effectuating the purposes for which the contract was designed." Id. For this reason, the question of whether Plaintiffs' arbitration award was based on "labor done" or "work performed" will be considered in light of the purposes of the surety contract between Millennium and NAC.
California courts have recognized in other contexts that employees in "pay or play" contracts perform labor even when their services are never required by the employer. Payne v. Pathe Studios, Inc., 6 Cal.App.2d 136, 141 (1935) (finding that an actress had performed her duties under an employment contract despite the fact that she was never required to work by the defendant motion picture company); Garfein v. Garfein, 16 Cal.App.3d 155 (1971) (holding that payments to an actress under a "pay or play" contract were "earnings" despite the fact that the actress was not required to appear in any motion pictures). In Garfein, a divorce case, the California Court of Appeal rejected the husband's argument that several payments made to his former wife/actress under "pay or play" contracts were not "earnings" because she never appeared in the motion pictures for which she was compensated. Garfein, 16 Cal.App.3d at 159. In so doing, the court held that the wife "eared" her agreed compensation by refraining from performing for anyone except the employer during the period of the contract. Id.
Under the reasoning of Payne and Garfein, the Court finds the Plaintiffs' arbitration award was based on "labor done" or "work performed" on the Telecast, and NAC is therefore liable under the terms of the surety agreement for the amount of the award. This finding is supported by the broad language of the bond, which requires NAC to answer for any "work or labor done. . of any kind" on the Telecast. (Ury Decl., Ex. 1 (emphasis added)). In addition, interpreting the surety agreement between Millennium and NAC to encompass the plaintiffs' arbitration award furthers the purpose of the bond. There can be no doubt that the bond was secured by Millennium to ensure Millennium's performance on its obligations regarding the Telecast. That is, in fact, the essence of a surety agreement. To hold that the bond would not protect the plaintiffs because Millennium cancelled the Telecast would eliminate that purpose. In addition, such a result would produce a definition of "work performed" and "labor done" that would be contrary to the holdings of both Payne and Garfein, and ignore the nature of work in the entertainment industry. As a result, the Court finds the terms of the surety agreement between Millennium and NAC encompass the amounts owed the plaintiffs as a result of their arbitration award against Millennium.
At oral argument, Defendant NAC's counsel, for the first time, raised the issue whether the individual Plaintiffs signed their contracts with Millennium after the Telecast had been canceled. The Court finds the argument is improper because it was not included in the Defendant's opposition. In any event, the argument is not meritorious because, as Plaintiffs' counsel explained, the "deal memos" referenced by Defendant's counsel are often memorialized after the fact, or not at all, and do not necessarily reflect the date at which the contracts between the individual Plaintiffs and Millennium were executed.
II. PLAINTIFFS WERE NOT REQUIRED TO MITIGATE THEIR DAMAGES.
In opposition to summary judgment, Defendant NAC argues that two individual Plaintiffs, Christine Clark Bradley and James Tanker, failed to mitigate their damages because they did not make reasonably diligent efforts to seek other employment after the cancellation of the Telecast on or about December 23, 1999. (Opp'n. at 10). In addition, NAC contends that Plaintiff Allan Kartun did locate other work following the cancellation of the Telecast for which he was paid $1,800.00. (Opp'n. at 11). Defendants argue that the failure of these defendants to mitigate damages, and the success of Mr. Kartun in mitigating his damages, indicate the plaintiffs are not entitled to recover their full arbitration award against Millennium.
NAC's argument is misguided. California law is clear that employees in pay or play arrangements who sue on the contract to recover the agreed upon compensation are not required to mitigate damages. Payne, 6 Cal.App.2d at 142 (1935). In Payne, the California Court of Appeal addressed the issue of mitigation of damages where an actress contracted with the defendant motion picture company to act in an upcoming film. Id. at 138. The contract, which required the actress to work for four weeks in exchange for $5,000.00, included an additional clause that provided for the actress to be paid the $5,000.00 even if her services were ultimately not required. Id. The actress's services were never required, and her assignee sued to recover the $5,000.00. Id. In response to the motion picture company's argument that the actress had failed to mitigate her damages, the California Court of Appeal held that the doctrine of mitigation of damages has no place in an action on the contract itself for the agreed compensation. Id. at 142. In addition, the court held that mitigation of damages was not required in cases of contracts of hire that did not require "all or the greater portion of the time of the party employed," or which did not "preclude the party from undertaking and being engaged in the performance contemporaneously of other contracts." Id.
The holding of the California Court of Appeal in Payne directly addresses the issue of mitigation of damages in this context. The plaintiffs have produced evidence that Millennium agreed to be bound by the terms of the Basic Agreement. (Harris Decl., Ex. 1). The Basic Agreement specifically provides that the employee be paid the agreed compensation even where the employer ultimately does not require his or her services. (Williams Decl., Ex. 1). As a result, the plaintiffs' contract with Millennium incorporated nearly identical provisions to those at issue in Payne. (Williams Decl., Ex. 1). Therefore, Plaintiffs were under no obligation to mitigate damages in an action against Millennium to recover the compensation owed them under their contracts.
The defendant disputes this evidence on the grounds that the terms of the bond control the liability of NAC and that there are exceptions to the employer's obligation to pay the agreed compensation set forth in Exhibit 1 of the Williams declaration. However, whether the bond governs NAC's liability is not relevant to whether Plaintiffs were required to mitigate damages in their contract with Millennium, and if the bond is the only applicable legal instrument, it does not impose a duty to mitigate anyway. In addition, the exceptions noted by NAC are not applicable to the plaintiffs.
CONCLUSION
For the foregoing reasons, and good cause appearing therefor, the Court hereby GRANTS Plaintiffs' Motion for Summary Judgment. The terms of the bond executed by Millennium and NAC encompass the amounts owed the plaintiffs pursuant to their arbitration award against Millennium.
IT IS SO ORDERED.