The opinion of the court was delivered by: ROBERT SWEET, Senior District Judge
The defendant Marvel Enterprises, Inc. ("Marvel") has moved for partial
summary judgment in accordance with Rule 56(a), Fed.R.Civ.P., dismissing
the claims in the complaint seeking a profit participation from licensing
of its characters for merchandising. The plaintiff Stan Lee ("Lee") has
cross-moved for partial summary judgment declaring that he is entitled to
10% participation in profits derived by Marvel from television or movie
productions, not limited by so-called "Hollywood Accounting," including
film/television merchandising when the profits do not result from a fee
for licensing. For the reasons set forth below, Marvel's motion is
denied, and Lee's cross-motion is granted in part and denied in part.
As of the time these motions were filed, Lee continued to serve as
Marvel's chairman emeritus. As discussed below, Lee has contributed
significantly to Marvel's growth since his initial employment in 1940.
Initially, Marvel's predominant business was publishing comic books, many
of which featured characters created by Lee e.g. Spider-Man, the
Incredible Hulk, the X-Men, and the Fantastic Four. Marvel has
subsequently expanded the use of its characters into movies, television,
and merchandising. Lee had a contract with Marvel that permitted him to
share in certain of these endeavors. Marvel then suffered the
vicissitudes of a control contest and bankruptcy. When it emerged from bankruptcy with new leadership, it entered into a new
contract with Lee (the "Agreement"). It is paragraph 4(f) of the
Agreement, executed on November 17, 1998, that is the central focus of
the present action. Paragraph 4(f) states:
[Lee] shall be paid a participation equal to 10% of
the profits derived during [his] life by Marvel
(including subsidiaries and affiliates) from the
profits of any live action or animation television or
movie (including ancillary rights) productions
utilizing Marvel Characters. This participation is
not to be derived from the fee charged by Marvel for
the licensing of the product or of the characters for
merchandise or otherwise. . . .
(Cohen Aff. Ex. 1 at 5.) This deceptively simple language, drafted by a
company and an executive both skilled and experienced in the industry,
has given rise to a multimillion dollar controversy because of changes in
the way Marvel has conducted business since the execution of the
Agreement in November, 1998.
According to Marvel, paragraph 4(f) entitles Lee to 10% participation
in only those television and motion picture production deals where Marvel
has been afforded rights of net profit participation. (Such net profit
participation arrangements are commonly referred to as "Hollywood
Accounting" deals.)*fn1 Lee argues that paragraph 4(f) entitles him to
10% of all profits including gross profits or gross proceeds derived
from contingent payments to Marvel in connection with the use of
Marvel characters in film or television productions.
According to Marvel, pursuant to the second sentence of paragraph
4(f), Lee is barred from any profits from merchandising. According to
Lee, he is entitled to participate in all revenue from film/television
merchandising with the exception of profits resulting from fees from
licensing for merchandise.
Skilled counsel for both sides praise the clarity of the language of
paragraph 4(f) to reach directly contrary results. What follows is an
effort to clarify and determine the terms of the contractual language
under the applicable principles of procedure and construction. This determination has the potential to
affect substantially the financial fortunes of the parties.
Lee commenced the instant action against Marvel and Marvel Characters,
Inc. ("Characters") on November 12, 2002.*fn2 In his first cause of
action, Lee seeks damages as a result of the alleged breach of paragraph
4(f) and also of paragraph 2(c), which Lee contends entitles him to be
named executive producer or co-executive producer of any movie or
television production utilizing Marvel characters. (Lipson Decl. Ex. 3 at
¶¶ 34-37.) In his second cause of action, Lee seeks damages as a result of
Marvel's alleged breach of a duty of good faith and fair dealing. (Id. at
¶¶ 38-43.) In his third cause of action, Lee seeks an order directing
Marvel to comply with its alleged obligation to pay him amounts owed
pursuant to the Agreement and to provide him with an accounting. (Id. at
¶¶ 44-46.) In his fourth cause of action, Lee seeks a declaration of his
rights regarding the participation payable to him under the Agreement.
(Id. at ¶¶ 47-50.) In discovery, Lee propounded various document requests and
interrogatories to Marvel in which Lee requested that Marvel produce and
identify, inter alia, all documents concerning Marvel's merchandising
agreements and payments received by Marvel in connection with
merchandising relating to movie and television productions.
Upon the October 22, 2003 argument on a motion to compel discovery that
turned on interpretation of Lee's rights under the Agreement, it was
concluded that the proper construction of the Agreement would be better
addressed in the context of a motion for summary judgment. The instant
motion by Marvel to bar Lee from profits arising out of merchandising and
Lee's cross-motion to obtain profits from film/television productions and
from certain film/television merchandising were heard and marked fully
submitted on September 8, 2004.
Lee became employed by Marvel's predecessor in interest in 1940 and,
with the exception of approximately two years in the early 1940's when he
served in the military service and one month in 1998, he has remained in
Marvel's employ ever since. During this period, Lee created or co-created
Marvel characters including the X-Men, the Incredible Hulk, Daredevil,
the Fantastic Four, Iron Man, Doctor Strange, the Silver Surfer, and Spider-Man. Lee's various roles at Marvel have included editor, art
director, head writer, and publisher. In 1980, Lee moved from New York to
California to set up and run Marvel's animation studio and to pursue
Marvel's involvement with television and motion pictures.
Marvel and its predecessors in interest started out in the business of
publishing comic books based on fictional characters in 1938. The first
Marvel character to be used in another medium was Captain America, which
was featured in a 1944 motion picture serial produced by Republic
Pictures. In the 1960's, Marvel expanded its business to include the
merchandising of consumer products utilizing Marvel characters. In 1966,
a half-hour animated cartoon series produced by the Grant-Ray-Lawrence
Company called The Marvel Super Heroes was syndicated to television
stations around the country. Between 1967 and 1970, half-hour television
programs featuring The Fantastic Four and Spider-Man appeared on the ABC
television network each Saturday morning.
By the late 1970's, the licensing of Marvel characters for merchandise
had become a principal line of Marvel's business, and Marvel had entered
into agreements with third parties to license its characters for use in
connection with dozens of types of consumer products. Marvel's Los
Angeles office sought to promote Marvel characters for television and
movies, and it continued its efforts to license such characters to third parties
for use in connection with television and movie productions.
Marvel was in bankruptcy from December 1996 through October 1998.
During this period Ronald Perelman, Carl Icahn, and ToyBiz, Inc.
("ToyBiz") sought control of Marvel. ToyBiz prevailed in this contest.
The Agreement And Subsequent Events
Prior to the 1994 bankruptcy, the parties entered into an agreement
granting Lee a share of Marvel's profits. In 1995, pursuant to this
agreement, Marvel paid Lee a 10% participation, which was based on
revenue received by Marvel under an arrangement with Danchuk
Productions. Under this arrangement, Lee received a percentage of gross
receipts. The payments to Marvel were characterized as "profit
participation." Marvel remitted 10% ($4,994) to Lee without any deduction
for costs. Marvel stated to Lee that this sum "represent[ed] your 10% of
the profits." (Cohen Aff. Ex. 23.) The executory portion of this prior
agreement was rejected by Marvel during the bankruptcy.
After Marvel emerged from bankruptcy, the parties on November 17, 1998
executed the Agreement. In addition to paragraph 4(f), the Agreement contains other relevant
provisions. Under paragraph 2, Lee is required to devote ten to fifteen
hours per week to Marvel's affairs. As consideration for his services,
Lee is entitled to receive an annual base salary of $810,000 for the
years beginning November 1, 1998 and 1999, $850,000 for the year
beginning November 1, 2000, $900,000 for the year beginning November 1,
2001, and $1,000,000 for the year beginning November 1, 2002 and each
year thereafter until his death. Upon Lee's death, the Agreement provides
for Lee's wife to receive survivor payments in an amount equal to 50% of
Lee's base salary as of the time of his death through the time of her
death, and for Lee's daughter thereafter to receive survivor payments of
$100,000 per year for five years. Under paragraph 4(c) of the Agreement,
Lee received 150,000 valuable stock options which Lee has already
exercised for a net gain of approximately $1.4 million. (Lipson Decl. ¶
13, Ex. 2 at ¶ 4(c).)
Between November 17, 1998 and today, Marvel has entered into over a
thousand merchandising agreements pursuant to which it has licensed to
third parties the right to use its characters in connection with various
toys, games, collectibles, apparel, interactive games, arcade games and
electronics, stationery and school products, health and beauty products,
snack foods and beverages, sporting goods, party supplies, and amusement ...