The opinion of the court was delivered by: Hellerstein, District Judge.
AMENDED OPINION AND ORDER
This case involves a joint venture formed by a publisher of
children's books and its subsidiary, plaintiffs Scholastic Inc.
("Scholastic") and Scholastic Productions Inc. ("SPI")
(collectively, the "Plaintiffs"), respectively, and a former
movie studio executive, Defendant Robert Harris, and his
production company, Defendant Harris Entertainment, Inc. ("HEI"),
to create a motion picture production company to produce
full-length feature films. Scholastic and SPI were to provide the
capital, and Harris and HEI, their knowledge and skill, in
acquiring, developing and producing motion pictures and other
forms of entertainment. Pursuant to an agreement (the
"Agreement") signed by SPI, Harris and HEI on October 12, 1990,
Harris claims that he is entitled to 100,000 stock appreciation
rights (the "SARs") in Scholastic, to be issued at designated
intervals at $18 per share.
I hold that the Agreement is complete and unambiguous, and that
Harris did not breach the terms and conditions of that contract,
and, consequently, that Harris is entitled to the SARs.
Accordingly, I deny Plaintiffs' motion for partial summary
judgment, and I grant Defendants' motion for summary judgment
dismissing the complaint and granting judgment on Defendants'
Defendant Robert Harris is a citizen of the State of
Connecticut and the President and CEO of HEI, a California
corporation. (Defendants' Am. Statement of Undisputed Facts
Pursuant to Rule 56.1 ("Harris 56.1"), at ¶¶ 1,2). Prior to his
involvement with the Defendants, Harris was the President of
Universal Television at MCA, Inc./Universal and the President of
Imagine Films, and had more than 25 years experience in the
entertainment industry. (Harris Aff. at ¶ 5). Harris & Company
("Harris & Co.") is a partnership whose offices are located in
Los Angeles, California. SPI and HEI are the two 50% owners of
Harris & Co.
Scholastic, Inc. ("Scholastic") is a corporation organized
under the laws of the State of New York whose stock is publicly
traded on NASDAQ. Scholastic, Inc. ("SPI"), also a New York
corporation, is a wholly-owned subsidiary of Scholastic. The
Court has diversity jurisdiction over the parties.
28 U.S.C. § 1332.
B. The October 12, 1990 Agreement
In early 1990, SPI and Scholastic commenced negotiations with
Harris and HEI to develop a motion picture production company.
(Plaintiffs Scholastic and SPI's Statement of Undisputed Facts
("Scholastic 56.1"), at ¶ 1). In addition to having a stake in
the produced films, Scholastic hoped to reap synergies from the
motion picture production company, like books, licenses, and
other ancillary products created from successful motion pictures.
(Scholastic 56.1, at ¶ 2). During 1990, Harris & Co. provided
Scholastic and SPI with a seven-year business plan, outlining the
proposed lines of business for the venture, as well as
anticipated revenues and expenditures. (Harris Aff., at Ex.6).
On October 12, 1990, SPI, agreed with HEI and Harris to a
written joint venture agreement (the "Agreement") for the
development and production of theatrical motion pictures and
television programs. (Harris 56.1, at ¶ 6). SPI agreed to provide
an initial $2,000,000 on a non-recourse basis for HEI's
"development costs as requested by HEI," and approximately
$116,000 per month for a 12 or 24 month period, according to the
options set out in the Agreement, from the initial development
funding date (the "IDFD") (the date the $2,000,000 was
(a) 24 months following the IDFD or (b) 12 months
from the date SPI makes available the Development
Loans to HEI pursuant to this paragraph as production
costs and overhead to permit HEI to develop
properties and provide services for such joint
(Agreement, at § 1(b)). The Agreement thus provided that SPI was
to contribute $2,000,000 initially, at HEI's request for HEI's
"development costs," and later, at SPI's option, another
$4,000,000 for "Development Loans" to HEI. In addition,
SPI undertook to pay HEI's overhead costs, that is, salaries to
and expenses of, officers and employees of HEI, including
salaries to and expenses of Plaintiff Harris, at the rate of
$116,000 per month for defined periods of time, for either a
one-year or two-year period, depending on the amount and extent
of developmental funding that SPI agreed to provide.
Under the terms of the Agreement, SPI and HEI agreed to
"jointly and equally own all motion picture and television
properties developed with the first $2,000,000 of SPI's
development funds." SPI was also given an option to acquire a 50%
equity stake in HEI ("SPI's Equity Election"). (Id.). SPI also
had the right to terminate funding on a certain date and retain
its Equity Election, but for only a 25% equity state in HEI.
(Id.). Thus, the Agreement provided:
At any time up to the end of fifteen months following
the IDFD, SPI shall have the right, at its sole
discretion, to give written notice to HEI terminating
SPI's continuing development funding obligations
beyond the initial $2,000,000 set forth above ("SPI's
Termination Right"). If SPI gives such notice, SI
(sic) shall thereafter have the right at any time to
exercise SPI's Equity Election and in such event SPI
shall only be entitled to acquire 25% of the equity
(Id.). If SPI chose not to exercise its Termination Right
before the date, 15 months after the IDFD, SPI was obligated to
provide, as stated above, an additional $4,000,000.00 in funding,
as "Development Loans." (Id.)*fn2.
According to the Agreement, HEI was to be run by Harris as the
CEO and chairman of the board, with an executive from Scholastic
to serve as the vice-chairman of its board of directors.
(Agreement, at § 2). Harris was given "complete authority and
control over all creative and business decisions of HEI," except
that certain major transactions, as defined by the Agreement,
would require the approval of SPI. (Id.). Harris was to enter
into an employment agreement with HEI providing for Harris'
exclusive services (except on projects he was working on with
Imagine Studios) for a period of three years from the IDFD,
provided that if SPI exercised its Termination Right, as
described above, Harris had the right to terminate his exclusive
employment arrangement with HEI. (Id.). In that event, Harris
could continue his employment on a basis non-exclusive to HEI
without any reduction in his salary. (Id.)
With respect to the projected corporate activities of HEI, the
Agreement provided that the joint venture would be primarily
focused on the "development, packaging, production and
distribution of theatrical feature films, (`A' titles), while
also involved "on a material level" in television development and
production." (Agreement, at § 3). In aspirational language, the
Agreement provided that:
HEI expects to develop at least five to ten new
feature film projects each year and to have at least
one film go into production during year two followed
by one to two films in production in year three.
Thereafter, it is HEI's goal to be in a position to
have two or three motion pictures commence production
The parties agreed that Harris' compensation would be $500,000
in annual salary, plus a percentage of the production and
overhead fees, bonuses on licensing and royalties, and other
ancillary rights, (Agreement, at § 4) and, the issue of this
lawsuit, 100,000 SARs.
100,000 stock appreciation rights to be issued at $18
per share and which shall vest one-third at the
conclusion of the fourth year of HEI's operations,
one-third at the conclusion of the fifth year of
HEI's operations and one-third at the conclusion of
the sixth year of HEI's operations.*fn3
Scholastic and SPI were granted the "first opportunity" to
license any "print publishing, merchandising and direct mail home
video distribution rights to HEI projects," "on equitable terms,"
and without being subjected to "a competitive bidding situation
for such rights." (Agreement, at § 5).
The Agreement contained a merger and integration clause,
providing that it was the "entire agreement" between the parties
(Agreement, at § 8j). The clause made reference to the parties'
intention to "enter into a long form agreement setting forth the
terms hereof and other terms and conditions customary in the
motion picture negotiations," but provided that until such long
form agreement was negotiated and executed, "this agreement" —
the one that the parties signed — "shall remain a complete and
mutually binding agreement." (Id.).
8. Miscellaneous. This agreement constitutes the
entire agreement between HEI and SPI. It is further
intended by the parties that they shall enter into a
long form agreement setting forth the terms hereof
and other terms and conditions customary in the
motion picture industry (which shall be subject to
good faith negotiations), but until such long form
agreement is executed, this agreement shall remain a
complete and mutually binding agreement . . .
(Agreement, at § 8). The Agreement was executed by HEI, SPI and
C. After the Execution of the Agreement
Despite their expressed intention to negotiate a "long form
agreement," and the exchange of written drafts for such an
agreement, the parties never came to another meeting of minds.
(Scholastic 56.1, at ¶ 13). Instead, they agreed to twenty-one
written amendments to the Agreement, confirming and implementing
the October 12, 1990 agreement.*fn4 The amendment executed on
August 28, 1991, for example, explicitly confirmed the joint
venture between SPI and HEI, and provided that they would do
business as a partnership, Harris & Co. (Scholastic 56.1, at ¶
26). Other amendments changed the date upon which SPI had to
exercise its Termination Right (the First Amendment) and modified
various funding dates and modified the amounts of funding.
(Harris Aff. at Ex. 4). Another Amendment gave Harris discretion
to utilize the funds contributed to the Joint Venture by
Scholastic. Significantly, the Amendments referred specifically
to the "[A]greement" between the parties, i.e., the agreement
executed on October ...