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CASE 2: REAL TIME

TABLE OF CONTENTS

I. Memo

II. Executive Summary

III. Introduction

IV. Analysis

V. Recommendation/Conclusion

VI. Appendix

VII. References

MEMORANDUM

To: The Real Time Chief Editor

From: Team 2 Consulting

Re: Case Study Analysis

Date: October 13, 2017

Subject: Disney's and Peggy Lee's Contractual Claims

Thank you for the opportunity given to Team 2 Consulting to work with your journal. Attached please find the case analysis as requested in regards to Disney and Peggy Lee litigations and claims about Lady and the Tramp payments. We hope to provide you with the fair information that you will use in creating the article informing the public about different sides of this complex issue.

EXECUTIVE SUMMARY

 INSERT HERE

INTRODUCTION

Through our breakdown of the case we will provide you with the action or inaction deemed necessary for proceeding with this litigation. For starters, we'd like to quickly restate some of the key points that have been brought up into question by both Disney and Peggy Lee. One of the points that we will further analyze include whether or not there was a breach of contract between Ms. Lee and Disney. Next, we will review whether or not Ms. Lee was entitled to 12.5% of the profits from videocassettes sold by Disney. Following that, we will discuss Disney's policy or lack thereof for profit participation deals and their effects on payments to voice actors. Lastly, we will be speaking of the financial issues and possible resolutions for both Disney and Peggy Lee. For starters, we'd like to first break down this case with the analysis of the law and its role in this litigation.

ANALYSIS

Breach of Contract

We'd first like to start off on deciding whether or not there was a breach of contract--meaning if any of the rules or procedures within the contract were violated. In the case of Disney v. Lee,  Ms. Lee stated she entered a contractual agreement in 1952, for the film Lady and the Tramp, in which she was provided 12.5% payment for the use of her recordings, as well as $3,500 for participation. Now looking over the contractual terms of this bilateral contract it is stated:

 “Anything herein to the contrary notwithstanding, it is agreed that nothing in this agreement contained shall be construed as granting to us (Disney) the right to make phonograph recordings and/or transcriptions for sale to the public, wherein results or proceeds of your services hereunder are used.” (Disney)

Looking over this section of the agreement there are a few terms that need to be broken down more meticulously. Starting off with, “Anything herein to the contrary notwithstanding...”, this can be seen as a phrase that overrides any other terms previously agreed upon within their contract. By stating that the content of this contract is “notwithstanding” means that any other statement or terms provided in the contract will in no situation conflict with what is said in § 12(b) of the contract. Following this phrase it was further reiterated that there was nothing in this contract that would allow for Disney to market phonograph recordings or transcriptions for sale in which the voice of Ms. Lee was used. Although these terms were present in this agreement, they did lack definiteness in the sense that the form or amount to be paid was not clear as the previous terms solely stated methods of compensation for phonograph recordings. Furthermore, it was written in the contract that Disney had the right to distribute the film to, “any other technology yet to be invented” (Disney). That technology yet to be invented would, in this case, be videocassettes. Having provided these terms that were laid out throughout the contract, both parties bring up very valid points, but Disney's precise verbiage in § 12(b) makes it notably clear that Ms. Lee was entitled to some further compensation in addition to the residual payments currently being provided. This in part due to videocassettes being considered a transcription, since Ms. Lee's voice and services were converted over to the aforementioned platform. So we can say with confidence that there was a breach of contract and Ms. Lee's argument is valid.

Invasion Of Privacy

Peggy Lee also brought into this litigation, her claim that her right to privacy was violated. More specifically, “the use of her name or likeness without her consent” (Williams and Bell). California Civil Code § 3344,  states that this law can only be violated if the person did not give prior consent. But as can be seen throughout our analysis in the prior section there was a contractual agreement between the two parties. Ms. Lee was aware that her voice was going to be used in the film, Lady and the Tramp, and both Disney and Ms. Lee had come to that agreement. Comparing this case to, Lugosi, v. Universal Pictures, 25 Cal. 3d 813 (1979), does bring into question whether or not Ms. Lee's was subject to, “unwarranted intrusion or exploitation” (Lugosi). Ms. Lee's voice was being used with the distribution of videocassettes of the film and there was no compensation given to her for this transcription. Although, this may at first glance appear as exploitation we have to again take into consideration that the terms of payment were only present for the technology used at the time--phonograph recordings. So, in conclusion although Ms. Lee's voice was being used in videocassettes and without payment that does not constitute that there was a lack of consent. Consent was given with her initial participation and agreement when she voiced the film in 1952. Therefore, we have concluded that there was no invasion of privacy by Disney.

Disney's Customs, Practice, and Usage

In addition, we'd like to discuss the evidence of the “custom, practice, and usage”of Disney's  policy regarding voice performance participation. Disney explains that their performers do not profit off their participation as voice performers in their animated films and that the policy “evolves”. This evidence is brought to light by Roy Disney. It states that the policy gives absolute ownership to Disney, “no strings attached” as said by Roy. According to Roy, this has been settled due to past experience back in the 20's (Melanie and Bell). Since it is likely that this policy was one of the first to be constructed since the upbringing of the company Disney, voice actors/actresses are also likely aware of this policy when agreeing to a contract lending Disney their voice talent. This policy must have been in place prior to the making of  Lady and the Tramp. In addition to prior films to Lady and the Tramp, animated movies after Lady and the Tramp still kept this policy active. Actors from The Little Mermaid and Oliver and Co. also testified that they did not receive profit in participation deals (Melanie and Bell). This shows that the company Disney has kept this policy even after Lady and the Tramp and has not given evidence of other voice talents special privileges involving voice participation to other actors/actresses. Also, the policy does evolve with the times because the distribution of the voice talents are from movies after Lady and the Tramp are not distributed in phonograph format, but instead the same videocassette format that Lady and the Tramp was being distributed in. The actors also did not make profit from their voice participation in the distributions (Melanie and Bell). The policy is backed up by evidence of past experiences and as well as future experience.

Testimony's Effect to the Parties

Under the policy explained before, the intent Disney has is to claim full rights to distribute voice talent transcripts and songs, as well as any profit made under Disney alone. Courts will use past practices to determine an intent of the party based on the language given to them. In this case, it is the testimonies of other actors under Disney and Roy Disney's introduction of his evidence. Prior knowledge of how the upbringing of the policy can have the courts understand why the policy was made and implemented. Companies like Disney are there to mainly make as much profit as possible. To have all rights and profit of voice talent distribution is a lucrative way to make profit. On the other hand, the courts will likely see Ms. Lee intent is to have some right to the profit (12.5%) since the videocassettes of her voice talent was only on a new format not on phonograph. Having her voice still be used and not altered. Ethical reasoning would have Disney change the policy to include new technology, however, courts do not take in account ethical decisions and only the words of the contracts and policies. Because the testimony shows policy to not compensate their voice actors on videocassette distribution of their talents, it is held against Ms. Lee due to the verbiage having an understandable and reasonable intent for Disney.

Compensation for Peggy Lee

We want to speak now of the hypothetical outcomes that will result should you decide that Disney has proven their case and should win this lawsuit. Ms. Lee is currently asking for 12.5% of the profits from the sales that Disney has made from videocassettes of Lady and the Tramp.  In the case of Ms. Lee v. Disney, if Disney prevails in the suit, then Ms. Lee is only entitled to the amount of $381,000 in the form of residual payments of her songs and voice performances. This exact number is due in part by the cap that has been set in accordance to union rules.

Peggy Lee's Financial Review

Now, moving away from the hypothetical situation above, we want to analyze more carefully the monetary claim that Ms. Lee states that she is entitled to. So in this case when Ms. Lee was calculating her share of profit from selling the videocassettes with Lady and the Tramp instead of taking 12.5% of the Net Profit before Taxes to calculate her payments, Ms. Lee took 12.5% from the difference between Total Sales and Marketing Expenses equalling $9,218,585.50 (SEE FIG. 1), which she then rounded down to $9,000,000. However, Ms. Lee did not take into the account other expenses that Disney had acquired in order to create and produce the videocassettes, as well as the expenses that the company put into the project.

Disney's Financial Report

Disney provided an income statement pertaining to the sales generated in 1987 for Lady in the Tramp. We want to get into more detail of what exactly is going on in the income statement with regards to sales revenue, gross profit, contribution to overhead, and profit before tax. Sales revenue is the amount that a company records for the sale of its products and/or services. It is the normal amount of money realized by a company after the sale of goods and services in a specific period, most commonly each year. For this particular case, sales revenue is considered the amount received by Disney after all sales. That total amount, as listed in the aforementioned income statement, was $ 77,236,000. Now moving on to the next section of the statement we have Gross Profit. Gross Profit is the total amount received after removal of the cost of goods from the sales revenue. That is the amount a company gets after deducting the costs associated with making and selling its products or after deducting the cost of providing its services. In our case, Disney enjoyed a gross profit worth total sales revenue minus all production cost giving us a grand total of  $41,785,204 (SEE FIG. 2).

Now moving along we want to speak a bit more on the contribution to overhead as well as the profit before tax. Contribution to overhead represents the amount that a product generated after covering all its direct costs. More specifically it is the amount of money that remains after all the direct costs that include cost of goods, direct selling expenses and variable order processing cost (Coaching Slides for Case 2). For this case the overhead cost is the amount left after general and administrative expenses are deducted from sales revenue which equals $67,690,540 (SEE FIG. 3). Finally, we want to speak of the profit before tax which is the amount that is left after all the expenses are subtracted from revenue including the allocation of Buena Vista's cost of returning to its operations. In this case, it is the entire profit which equals $32,239,744 (SEE FIG. 4).

Interest and Damages

Now moving away from Disney's income statement we want to discuss more on the compensation that will result should Ms. Lee prevail in the lawsuit against Disney. In this particular case she will be entitled to $4,029,968 in damages. The way we arrived at this value is by taking the profits before tax ($32,239,744) and multiplying it by the established 12.5% that was stated in Ms. Lee's contract. The reason we used the profit before tax is because each individual Disney project is not charged an income tax expense because they are based on their worldwide distribution. Furthermore, if Ms. Lee prevails in the case and the court allows her prejudgement interest of 8%, on top of the damages, we conclude that Ms. Lee will be awarded the amount totaling in $5,076,599.05. The way we came to this conclusion is as follows: 8% annually for 3 years from the date of demand, February 28, 1988, to the date of the judgment March 1, 1991 from the damages is $1,046,631.05. Thus, the damages are $4,029,968 plus the interest of $1,046,631.05 equalling $5,076,599.05.

RECOMMENDATION & CONCLUSION

  Given our extensive analysis for both sides in the lawsuit of Lee v. Disney we have come to the conclusion that there was a breach of contract which entitles Peggy Lee to monetary compensation in her voice transcription of Lady in the Tramp. Although, there was no active voice participation deal between Ms. Lee, we analyzed the terms in the contract that were specifically intended for the plaintiff, Peggy Lee and determined that videocassettes were an unauthorized transcription of her voice. Given that she was not compensated for the sales during the distribution of the videocassettes we recommend that, should you be in agreement with our judgement, Ms. Lee is entitled to interest and damages totalling to the amount of $5,076,599.05. Thank you again for consulting with our team and we expect that through our rigorous analyzation of the case that you will be able to reach the appropriate decision with regards to this case.

APPENDIX

Figure 1

Total Sales and Marketing Expenses:

(77,236,000 – 3,487,316) x 12.5% = $9,218,585.50.

Figure 2

Total Gross Profit:

 $77,236,000 -31,963,480 -3,487,316 = $41,785,204.

Figure 3

Contribution to Overhead

 Sales – General and Administrative Costs: $77,236,000 -9,545,460 = $67,690,540.

Figure 4

Sales – All expenses: $77,236,000 -31,963,480 -3,487,316 -9,545,460 = $32,239,744.

References

Melanie, William, Jan, Bel,. Consulting for the real-time (2009). Retrieved from;

https://mail.google.com/mail/u/0/#inbox/15f05cf3fcc9cd45?projector=1

Real-time student coaching slides. Retrieved from,

https://www.csun.edu/sites/.../real-time-student-coaching-slides%20-%20Copy.ppt

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