Post by darkstar on Sept 23, 2005 13:00:28 GMT
FILED LOS ANGELES SUPERIOR COURT
AUG 22 2005
JOHN A CLARKE, CLERK
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF LOS ANGELES
Case No. BC289730
Complaint filed 2/4/03
Consolidated with
Case No. BC294495
Complaint filed 4/23/03
Assigned to Hon. Gregory Alarcon
PLAINTIFFS’ OBJECTION TO DEFENDANTS “ACCOUNTING”, AND PLAINTIFF’S REQUEST FOR GROSS RECEIPTS
Hearing:
Date: September 16, 2005
Time: 8:30am
Dept: 36
JOHN DENSMORE, individually and on behalf of California general partnerships comprised of John Densmore, the Estate of Jam es Morrison, the Estate of Pamela Courson, Raymond Manzarek and Robert Krieger.
Plaintiff,
Vs.
RAYMOND MANAREK, an individual; ROBERT KRIEGER, an individual; IAN ASTBURY, an individual’ DOORS TOURING, INC., a California corporation; and Does 1 through 20, inclusive,
Defendants.
AND RELATED CROSS-ACTION.
PEARL COURSON, individually and as guardian ad litem for COLUMBUS COURSON, each on behalf of the DOORS MUSIC CO., a California general partnership and on behalf of THE DOORS, a California general partnership, and GEORGE MORRISON and CLARA MORRISON, each and on behalf of the DOORS MUSIC CO., a California general partnership, ad PEARL COURSON, individually and as guardian ad litem for COLUMBUS COURSON, and GEORGE MORRISON, and CLARA MORRISON, individually with respect to the seventh cause of action,
Plaintiffs,
Vs.
RAYMOND MANZAREK, ROBERT KRIEGER, IAN ASTBURY, THE DOORS TOURING COMPANY, a California entity of unknown form, and DOES 1 through 500, Inclusive,
Defendants.
TABLE OF CONTENTS
I. Introduction
II. The Court’s Statement Of Decision and the Accounting To Be Provided By Defendants
III. The So-Called “Accounting” Provided By Defendants
A. What Was Produced By Defendants
B. The “Objection” Of Plaintiffs
IV. Defendants Manzarek and Krieger has refused to present evidence of the profits earned from touring and related activities and may not now claim any deductions for operating expenses.
A. Defendants’Failure To Produce An Accounting In Response To The Court’s order Warrants An Award To Plaintiffs Of Defendants’ Gross Receipts.
B. Application Of Precisely the Same Analysis In Copyright Law
C. The Amount Due Densmore
V. Defendants Request To Pay Only 50% of the amount to be disgorged is disingenuous and should be denied
VI. Conclusion
I. INTRODUCTION
In what only can be described as arrogance, intellectual dishonesty, unbashed disdain for the Court’s Statement of Decision, and/or poor litigation tactics, in response to the Court’s Order that they supply evidence of profits (as defined by the Court), Defendants Manzarek and Krieger have filed and served a pathetic excuse for an “accounting.” At best it is an embarrassment, at worst an insult. In either event, it is a far cry from what the Court sought. Plantiffs and the Court are unable even to make the complete profit calculation contemplated.
Given the Defendants’ conscious tactic not to comply with the Court’s Order, and their resulting “failure of proof” on this issue and the amount of relevant operating expenses to be deducted from the gross receipts of the Defendants’ performances and related activities, Plaintiffs request that the Court make its profitability determination based soley on the evidence of revenues generated as a result of the performing and related activities of the Defendants, as presented at trial, and the Court’s summary of that evidence in its Statement Of Decision (See Paragraph 32 thereof). Defendants Manzarek and Krieger, have elected not to account for profits or identify their operating expenses, ought to now be determined to be liable to Plaintiffs for the gross revenues received by them and their companies from all sources related to the activities of their band from and after January 1, 2003. This is precisely the lesson of the Court Of Appeal Decision in Rosenfield, Meyer & Sussman v. Cohen, 191 Cal. App. 3d 1035, 1050-53 (1087).
II. THE COURT’S STATEMENT OF DECISION AND THE ACCOUNTING TO BE PROVIDED BY DEFENDANTS
Regardless of whether or not the Defendants agree with it, the Court’s Statement of Decision is a resounding victory for Plaintiffs John Densmore and the Estates. The Court concluded that by virtue of their unauthorized use of the name The Doors, an asset belonging to the Old Doors Partnership, with a limited license to the 1971 “New Doors” Partnership while it was extant, Manzarek and Krieger, inter alia, (1) breached the written 1071 partnership agreement with Densmore in two distinct respects, (2) by their misappropriation of a partnership asset, i.e. the name “The Doors”, breached their fiduciary duties to Densmore and the Estates as partners of the partnership that owns the name “The Doors”, and (3) must account to the Plaintiffs for the “profits” earned from the touring and related activities of their band, without permitting deductions for legal fees or the salaries paid to any defendant in this case.
The Court’s conclusion regarding restitutionary disgorgement, and the Jury’s earlier finding of liability, is consistent with Special Instruction No. 4, directing that a partner’s duty of loyalty includes “the duty to account to the partnership and hold as trustee for it any property, profit, or benefit made from a use of partnership property….” (Emphasis supplied). This instruction tracks the language of California Corporations Code 16404 (b) )1).
That the Court intended Manzarek and Krieger to “account” to the Plaintiffs for all profits and benefits resulting from their illegal touring activities, regardless of the corporate or other vehicle into which the receipts may have been deposited at their direction, is evident from the Statement Of Decision itself. Paragraph 32 of the Statement of Decision recites that more than $8,000,000 or revenue and $2,700,000 of profit was realized in just the approximate initial two years of doing business as a band (ignoring what has been done in the past year), plus additional foreign tax credits of $260,000 and $275,000 from Diamond Night, LLC. That the liability of Manzarek and Krieger was to include all profits and benefits realized, regardless of the identity of the entity which received them, is equally clear, The Court’s definition of “profits” fro this accounting purpose, excludes compensation paid to any Defendant, and also excludes a deduction for the millions of dollars in legal fees incurred in this litigation, which fees were paid by Doors Touring, Inc., a company owned solely by Manzarek and Krieger. See paragraph 23 of Goldman’s declaration.
Defendants were ordered to account and demonstrate the profits earned from and after June 30, 2003, and all profits earned to April 18, 2003. The purpose of the upcoming “accounting hearing” is to determine the amount of “profit” and benefit derived from the misappropriation of the partnership’s assets so that it can be restored to the Old Doors Partnership or Densmore, as appropriate. For Defendants now to suggest that the amount of the profit and benefit received by Manzarek and Krieger is less than $1,500,000 when the Defendants have had, inter alia, millions of dollars of litigation attorney fees paid for them, is ludicrous and a blatant disregard of the Court’s decision. This $1,500,000 figure is $1,300,000 less than the $2,800,000 of profits preliminarily identified by the Court in its Statement Of Decision (see paragraph 32), which dealt only with the first 20 months or so of touring.
The Court’s definition of “profits” contemplates identifying gross revenue from performing and related activities, and identification by Defendants of appropriate operating expenses in connection with the generation of that revenue, which definition specifically prohibits the inclusion in operating expenses of compensation to the Defendants and the litigation fees incurred in this case. As discussed hereinafter, the “accounting” provided by Defendants does not identify any operating expenses. In response to the Court’s Order to ignore the compensation paid to the Defendants, Defendants, principally in the form of pay checks (complete with withholding information). For the Defendants now to ignore the Court’s Statement Of Decision and provide only the limited compensation information described hereinafter, which is nothing more than compensation information which the Court expressly directed be excluded as a deductible item, is just plain outrageous and insulting to everyone else involved in this litigation. The Defendants must bear the burden of their litigation tactic to ignore the Court’s Order to produce operating expense figures that might be offset against gross receipts. As a consequence of their failure of proof, they should not be entitled to deduct anything from the gross revenues.
III. THE SO-CALLED ‘ACCOUNTING’ PROVIDED BY DEFENDANTS
A. What Was Produced By Defendants
The “accounting” produced by Defendants consists solely of an identification of amounts received directly by Manzarek and Krieger, principally as salary. The Court and Plaintiffs have been provided with a declaration from Mr Goldman identifying the checks and compensation received directly by Manzarek and Krieger from Doors Touring, Inc. (principally paychecks complete with SDI and FICA withholding, and Subchapter “S” distributions), some distribution information from their LLC, and two wire transfers to each from European promoters. Defendants then submit that their “profits” (i.e. salary received) totaled $188,000 from January 1, 2003 through April 18, 2003 (Exhibit A to Goldman declaration), and $1,392,053 thereafter (Exhibit B to Goldman declaration). Exhibits C and D to Mr Goldman’s declaration reflect that the compensation from Doors Touring, Inc. are paychecks, with appropriate withholdings – precisely the type of compensation which the Court indicated was of no moment.
Equally important is the fact that in paragraph 23 of his declaration Mr Goldman states that neither Manzarek nor Krieger paid any of the legal fees in this case, which is consistent with his testimony at trial that the fees were paid by Doors Touring, Inc.
Although many of the revenues relating to that band’s activities have been identified by the Court in paragraph 32 of its Statement Of Decision, in response to the Court’s Order for an accounting the Defendants have not identified a single additional dollar of revenue from those activities. Not a single operating expense of the touring and related activities of “The Doors of the 21st Century” has been provided in response to the Court’s ordered accounting.
B. The “Objection” of Plaintiffs
Plaintiffs “object” to the “accounting” provided, to the extent Plaintiffs are required to do so, on the ground that it wholly fails to comply with the Court’s Order. The “accounting” is the worst form of “game playing.” There is virtually no way, from what was provided by Defendants, to determine the requisite profit calculations as defined and requested by the Court. The objection is made to document Plaintiffs’ acknowledgement of the Defendants’ refusal to comply with the Court’s Order. As for the consequence of the Defendants’ refusal, as discussed below, Plaintiffs accept the Defendants’ “failure of proof” on the issue of operating expenses of the tour and related activities. Plaintiffs believe that as a result of the refusal of Defendants to present evidence of operating expenses, the liability of Manzarek and Krieger should be established at not less than $10,035,000. Anything less rewards them for their arrogance and refusal to comply with the Court’s Order and makes a mockery of these proceedings.
IV. DEFENDANTS MANZAREK AND KRIEGER HAVE REFUSED TO PRESENT EVIDENCE OF THE PROFITS EARNED FROM TOURING AND RELATED ACTIVITIES AND MAY NOT CLAIM ANY DEDUCTION FOR OPERATING EXPENSES.
Plaintiffs are not required now to opine whether Defendants are playing games, are lazy, make poor strategic decisions, or just do no care to present the evidence and accounting ordered by the Court. Suffice it to say that the Court already is aware that there has been generated by the touring and related activities of “The Doors of the 21st Century” and its predecessor, for at least the first 20 months commencing January 2003, gross revenues of not less than $9,500,000 plus tax credits to Manzarek and Krieger and Diamond Night earnings of not less than $535,000 (see paragraph 32 of the Statement Of Decision). Given Defendants refusal to present any evidence of any operating expenses pertaining to touring and related activities, Plaintiffs believe that there is a complete “failure of proof” on the part of Defendants. In light of the Defendants’ decision, Plaintiffs contend that the amount for which Manzarek and Krieger should be liable is $10,035,000 (the amount of revenue already acknowledged by the Court), plus any additional gross revenues that are presented or disclosed at the hearing on September 16. This is the sum of the revenues known to the Court as of the date of its Statement of Decision, and as to which Defendants have not now presented a single off setting operating expense to be considered by the Court or the Plaintiffs.
A. Defendants’ Failure To Produce An Accounting In Response To The Court’s Order Warrants An Award To Plaintiffs Of Defendants’ Gross Receipts.
The Court has ruled that the Defendants must be liable for all of the profits and benefits they have realized as a result of the misappropriation of the partnership’s asset, i.e., the name The Doors, consistent with Corporation Code 15404 (b) (1). Section 16404(b) (1) of the Corporations Code, provides that a partner has the duty “to account to the partnership and hold as trustee for it any property, profit, or benefit derived….from a use by the partner of partnership property…” It is the Defendants’ burden and duty to account.
Where a Defendant has been ordered and fails to account for profits, benefits, and expenses within his exclusive control and knowledge, the court is empowered to base its award upon gross receipts. That is the holding of Rosenfeld, Meyer & Susman v. Cohen, 191 Cal. App. 3d 1035, 1050-53 Cal. Rptr. 14 (1987). In upholding the trial court’s use of a “gross revenue” calculation of profits for distribution among a firm and its departing partners, the Court of Appeal in Rosenfeld was presented with strikingly similar facts to the case at bar. Among the many issues on appeal was that portion of the judgment concerning how profits would be distributed among the partnership and the departing partners on entertainment projects negotiated by the firm prior to its dissolution. Although it would have been a simple matter for the partnership to provide an accounting that differentiated percentage fees according to projects commenced before and after dissolution, the partnership declined to do so. Instead, the trial court concluded, the partnership had deliberately established a method of accounting to frustrate the departing partners’ ability to prove their share of business income.
Based on its analysis of the trial court record, and relying on the “duty to account” obligation of a partner, reflected in the predecessor to Corporations Code 16404, the Rosenfeld Court stated,
“(t)he position of (the firm) was not unlike that of other trustees who fail to keep proper records of the dates and amounts of receipts and expenses; such fiduciaries have the burden of establishing that data and, upon their failure to do so, a computation may be made on the basis of gross receipts, even though that approach is unfavorable to them.” (Emphasis supplied). 191 Cal. App. 3d at 1051.
Citing Larkin v. Jesburg, 191 Cal. App. 2d 272, 277, 12 Cal. Rptr. 655 (1961) (partner cannot escape liability by failing to reproduce records or testimony to account for funds chargeable to him); Kennard v. Glick 183 Cal. App. 2d 246, 250, 7 Cal. Rptr. 88 (1960) (an agent who fails to keep an account creates a presumption against himself, and brings upon the burden of accounting for all that comes into his hands); and Purdy v. Johnson, 174. Cal. 521, 530, 163 P. 893 (1917) (trustees are obligated to render full account of their dealings, and where there has been a failure to keep trust records, or a refusal account, all presumptions will be against trustee). In upholding the trial court’s award of fees on a “gross receipts” basis, the Court of Appeal in Rosenfeld reasoned,
Surely where a fiduciary has a legal duty to allocate receipts between those in which its beneficiary has some interest and those in which the beneficiary has none, and is fully and singularly capable of making that allocation but fails to do so, a court is justified in calling upon the fiduciary to bear the burden of differentiation at trial. This is true, a fortiori, where the fiduciary’s failure is deliberate and for the purpose of frustrating recovery by the beneficiary.
Id at 1051-52
Here, Defendants’ failure to comply with the Courts’ Order is even more egregious. Defendants not only have the statutory obligation to account, they were specifically ordered by this Court to render an accounting of all profits and benefits, together with any operating expenses, by August 16, 2005. Defendants have submitted an accounting that consists solely of an identification of amounts received by Manzarek and Krieger, principally as salary. Unlike the Rosenfeld firm, which claimed it was not capable of making a distinction between profits earned prior to or after dissolution, it is beyond dispute that Defendants have the requisite books and records to satisfy their accounting obligations to the Court and to Plaintiffs. Their failure to provide this information is simply a continuation of the sharp tactics and gamesmanship that have been Defendants’ modus operandi throughout this action. Their willful disregard of and disrespect for this Court’s ruling, amounts to a wholesale failure of proof, and on that basis Plaintiffs and their partnership should be awarded the gross receipts derived from Defendants’ use of the name The Doors.
Rosenfeld is strikingly similar to this case for yet another reason. There, after being faced with the dire consequence of their unsuccessful “hide the ball” litigation tactic regarding the required accounting, which is what Defendants have done here, Rosenfeld sought to reopen the evidence two months after the Statement Of Decision but before entry of judgment, so that it could provide the very data it previously refused to give. In affirming the trial court’s exercise of discretion in denying the motion to reopen the evidence, the Court said,
“The Court concluded that the failure to introduce evidence on the (accounting) issue was neither inadvertent nor excusable, but was the product of a knowing and informed choice of trial tactics.” 191 Cal. App 3d at 1052-53
This is precisely the situation now before the Court. Defendants should now be stuck with their decision not to provide the accounting information requested. They made their bed, and now they should be forced to sleep in it.
B. Application Of Precisely The Same Analysis In Copyright Law.
While Plaintiffs recognize that the instant litigation is not a copyright infringement action, the law regarding the determination of profits in that arena, albeit statutory, is remarkably similar and illustrative. Under Federal law, copyright infringers may be liable to the copyright owner for all profits realized from their unlawful activity. There, the burden of the plaintiff is to introduce evidence of the Defendants’ gross revenues from the infringing activity. It then is the burden of the infringer/wrongdoer to establish relevant and applicable expenses to be deducted from those revenues in determining the amount of profits to which the plaintiff is entitled. See 17 USC 504: Frank Music Corp. vs. MGM, 772 F2d 505, 514-515 (9th Cir. 1985).
The rationale of the copyright law is precisely the same as that which applies to a partnership’s entitlement to profits and benefits as a result of a partner’s misappropriation of assets.
C. The Amount Due Densmore
The Court ordered disgorgement in favor of Densmore of one-third of the amount of profits earned from January 1, 2003 to April 18, 2003. This consisted of six performances. As discussed above the Defendants’ failure of proof of any operating expenses during that period, Densmore should receive one-third of the gross receipts from those concerts. Exhibit 163, the Agency Group’s “Finals By Artist” report, reflects that the gross receipts after taxes received by DTI for those six performances was $1,361,826.00. For sake of simplicity, and because of the inability to calculate merchandise revenues from those six shows, Densmore is willing to accept from Defendants one-third of the content receipts for those six concerts, as defined on Exhibit 163 or $453,942.00.
V. DEFENDANTS’ REQUEST TO PAY ONLY 50% OF THE AMOUNT TO BE DISGORGED IS DISINGENUOUS AND SHOULD BE DENIED
Defendants urge that they should be obligated to pay to the Old Doors Partnership (whose partners are Densmore, Manzarek, Krieger and the Estates) only 50% of that partnership and will simply get back. In their words. “(f)rom an accounting standpoint, it would be superfluous to obligate Manzarek and Krieger to make payments of 100% of the disgorged amount to the Old Doors Oral Partnership, only to have 50% returned to them.” And they urge that from a “legal perspective” the Plaintiffs only can recover the “specific loss which each has suffered.”
What the Defendants conveniently ignore is that (1) the actions were brought individually and on behalf of the partnership, which the Court acknowledged by ordering the disgorgement in favor of the Old Doors Partnership, and (2) that the partnership is a distinct legal entity, with its own powers, rights and obligations. The fact that the funds are paid to a partnership does not necessarily mean that the funds are automatically or immediately disbursed to its partners. It is operating for the partnership, to be used and disbursed as the partnership deems best.
VI. CONCLUSION
For the reasons set forth, and especially given Defendants’ conscious decision not to provide any proper accounting of profits, as directed by the Court, Plaintiffs respectfully request that Manzarek and Krieger be ordered to pay over to Plaintiffs the gross amount of their revenues from touring and related activities, as demonstrated by the evidence adduced to date and to presented at the September 16, 2005 hearing. Plaintiffs contended this amount should be $453,842 to Densmore, and at least $8,673,174. to the Old Doors Partnership) plus such additional gross receipts determined by the Court not to have been included in its earlier calculation of $10,035,000).
(Concurrent with the filing of this Objection, Plaintiffs also are filing a Motion to Add Doors Touring, Inc., As A Judgment Debtor. That motion restates that which is obvious i.e., that the Defendants’ liability is for more than just what was received by them in the way of a “pay check:” from their loan-out corporation, and seeks to add Doors Touring, Inc. “(DTI) as an additional judgment debtor. Although the trial testimony of Alan Goldman was that DTI had no “income”, thus making it basically a worthless potential judgment debtor from an income point of view, it is equally clear that it may have assets that are a “benefit” derived from the misappropriation of the name “The Doors,” on which a constructive must be imposed. In particular, the testimony was that the intellectual property rights of the MTV Japan video of the Defendants’ concert performance was to soon revert to DTI. There may be other assets in the form of intellectual property rights related to DVDs and CDs that should be held in trust for Plaintiffs per Corporations Code 16404, e.g., rights to master recordings. There also many be other income streams about which Plaintiffs are presently unware.)
(Defendants have identified Mr Goldman as one of their two witnesses on September 16. Plaintiffs intend to serve a subpoena on Mr Goldman requesting that he produce at that time all documents reflecting the gross receipts received by Doors Touring, Inc, Diamond Night Productions, LLC, wire transfers to Manzarek and Krieger, and all other documents reflecting the amount paid by promoters, merchandisers and others relating to performances by any band in which Manzarek, Krieger and Astbury from January 1, 2003 to the date of the hearing. Furthermore, as reflected in the accompanying declaration of S. Jerome Mandel, 9, Plaintiffs now are aware that in June 2005, Defendants caused to be created a company known as D21C, Inc. The aforementioned subpoena also will request information regarding the revenues received by that Corporation related to performances by the Defendants for concerts that were scheduled and promoted as of July 22, 2005, the date the Court issued its Statement Of Decision and Order re Permanent Injunction.)
MANDEL, NORWOOD & GRANT
By: Jerome Mandel
Dated August 22 2005
Attorneys for Plaintiff and Cross-Defendant
JOHN DENSMORE and Plaintiffs COLUMBUS AND PEARL M. COURSON
HINOJOSA & WALLET
By: Jeffery Forer
Dated August 22 2005
Attorneys For Plaintiffs GEORGE MORRSON and CLARA MORRISON
AUG 22 2005
JOHN A CLARKE, CLERK
SUPERIOR COURT OF THE STATE OF CALIFORNIA
FOR THE COUNTY OF LOS ANGELES
Case No. BC289730
Complaint filed 2/4/03
Consolidated with
Case No. BC294495
Complaint filed 4/23/03
Assigned to Hon. Gregory Alarcon
PLAINTIFFS’ OBJECTION TO DEFENDANTS “ACCOUNTING”, AND PLAINTIFF’S REQUEST FOR GROSS RECEIPTS
Hearing:
Date: September 16, 2005
Time: 8:30am
Dept: 36
JOHN DENSMORE, individually and on behalf of California general partnerships comprised of John Densmore, the Estate of Jam es Morrison, the Estate of Pamela Courson, Raymond Manzarek and Robert Krieger.
Plaintiff,
Vs.
RAYMOND MANAREK, an individual; ROBERT KRIEGER, an individual; IAN ASTBURY, an individual’ DOORS TOURING, INC., a California corporation; and Does 1 through 20, inclusive,
Defendants.
AND RELATED CROSS-ACTION.
PEARL COURSON, individually and as guardian ad litem for COLUMBUS COURSON, each on behalf of the DOORS MUSIC CO., a California general partnership and on behalf of THE DOORS, a California general partnership, and GEORGE MORRISON and CLARA MORRISON, each and on behalf of the DOORS MUSIC CO., a California general partnership, ad PEARL COURSON, individually and as guardian ad litem for COLUMBUS COURSON, and GEORGE MORRISON, and CLARA MORRISON, individually with respect to the seventh cause of action,
Plaintiffs,
Vs.
RAYMOND MANZAREK, ROBERT KRIEGER, IAN ASTBURY, THE DOORS TOURING COMPANY, a California entity of unknown form, and DOES 1 through 500, Inclusive,
Defendants.
TABLE OF CONTENTS
I. Introduction
II. The Court’s Statement Of Decision and the Accounting To Be Provided By Defendants
III. The So-Called “Accounting” Provided By Defendants
A. What Was Produced By Defendants
B. The “Objection” Of Plaintiffs
IV. Defendants Manzarek and Krieger has refused to present evidence of the profits earned from touring and related activities and may not now claim any deductions for operating expenses.
A. Defendants’Failure To Produce An Accounting In Response To The Court’s order Warrants An Award To Plaintiffs Of Defendants’ Gross Receipts.
B. Application Of Precisely the Same Analysis In Copyright Law
C. The Amount Due Densmore
V. Defendants Request To Pay Only 50% of the amount to be disgorged is disingenuous and should be denied
VI. Conclusion
I. INTRODUCTION
In what only can be described as arrogance, intellectual dishonesty, unbashed disdain for the Court’s Statement of Decision, and/or poor litigation tactics, in response to the Court’s Order that they supply evidence of profits (as defined by the Court), Defendants Manzarek and Krieger have filed and served a pathetic excuse for an “accounting.” At best it is an embarrassment, at worst an insult. In either event, it is a far cry from what the Court sought. Plantiffs and the Court are unable even to make the complete profit calculation contemplated.
Given the Defendants’ conscious tactic not to comply with the Court’s Order, and their resulting “failure of proof” on this issue and the amount of relevant operating expenses to be deducted from the gross receipts of the Defendants’ performances and related activities, Plaintiffs request that the Court make its profitability determination based soley on the evidence of revenues generated as a result of the performing and related activities of the Defendants, as presented at trial, and the Court’s summary of that evidence in its Statement Of Decision (See Paragraph 32 thereof). Defendants Manzarek and Krieger, have elected not to account for profits or identify their operating expenses, ought to now be determined to be liable to Plaintiffs for the gross revenues received by them and their companies from all sources related to the activities of their band from and after January 1, 2003. This is precisely the lesson of the Court Of Appeal Decision in Rosenfield, Meyer & Sussman v. Cohen, 191 Cal. App. 3d 1035, 1050-53 (1087).
II. THE COURT’S STATEMENT OF DECISION AND THE ACCOUNTING TO BE PROVIDED BY DEFENDANTS
Regardless of whether or not the Defendants agree with it, the Court’s Statement of Decision is a resounding victory for Plaintiffs John Densmore and the Estates. The Court concluded that by virtue of their unauthorized use of the name The Doors, an asset belonging to the Old Doors Partnership, with a limited license to the 1971 “New Doors” Partnership while it was extant, Manzarek and Krieger, inter alia, (1) breached the written 1071 partnership agreement with Densmore in two distinct respects, (2) by their misappropriation of a partnership asset, i.e. the name “The Doors”, breached their fiduciary duties to Densmore and the Estates as partners of the partnership that owns the name “The Doors”, and (3) must account to the Plaintiffs for the “profits” earned from the touring and related activities of their band, without permitting deductions for legal fees or the salaries paid to any defendant in this case.
The Court’s conclusion regarding restitutionary disgorgement, and the Jury’s earlier finding of liability, is consistent with Special Instruction No. 4, directing that a partner’s duty of loyalty includes “the duty to account to the partnership and hold as trustee for it any property, profit, or benefit made from a use of partnership property….” (Emphasis supplied). This instruction tracks the language of California Corporations Code 16404 (b) )1).
That the Court intended Manzarek and Krieger to “account” to the Plaintiffs for all profits and benefits resulting from their illegal touring activities, regardless of the corporate or other vehicle into which the receipts may have been deposited at their direction, is evident from the Statement Of Decision itself. Paragraph 32 of the Statement of Decision recites that more than $8,000,000 or revenue and $2,700,000 of profit was realized in just the approximate initial two years of doing business as a band (ignoring what has been done in the past year), plus additional foreign tax credits of $260,000 and $275,000 from Diamond Night, LLC. That the liability of Manzarek and Krieger was to include all profits and benefits realized, regardless of the identity of the entity which received them, is equally clear, The Court’s definition of “profits” fro this accounting purpose, excludes compensation paid to any Defendant, and also excludes a deduction for the millions of dollars in legal fees incurred in this litigation, which fees were paid by Doors Touring, Inc., a company owned solely by Manzarek and Krieger. See paragraph 23 of Goldman’s declaration.
Defendants were ordered to account and demonstrate the profits earned from and after June 30, 2003, and all profits earned to April 18, 2003. The purpose of the upcoming “accounting hearing” is to determine the amount of “profit” and benefit derived from the misappropriation of the partnership’s assets so that it can be restored to the Old Doors Partnership or Densmore, as appropriate. For Defendants now to suggest that the amount of the profit and benefit received by Manzarek and Krieger is less than $1,500,000 when the Defendants have had, inter alia, millions of dollars of litigation attorney fees paid for them, is ludicrous and a blatant disregard of the Court’s decision. This $1,500,000 figure is $1,300,000 less than the $2,800,000 of profits preliminarily identified by the Court in its Statement Of Decision (see paragraph 32), which dealt only with the first 20 months or so of touring.
The Court’s definition of “profits” contemplates identifying gross revenue from performing and related activities, and identification by Defendants of appropriate operating expenses in connection with the generation of that revenue, which definition specifically prohibits the inclusion in operating expenses of compensation to the Defendants and the litigation fees incurred in this case. As discussed hereinafter, the “accounting” provided by Defendants does not identify any operating expenses. In response to the Court’s Order to ignore the compensation paid to the Defendants, Defendants, principally in the form of pay checks (complete with withholding information). For the Defendants now to ignore the Court’s Statement Of Decision and provide only the limited compensation information described hereinafter, which is nothing more than compensation information which the Court expressly directed be excluded as a deductible item, is just plain outrageous and insulting to everyone else involved in this litigation. The Defendants must bear the burden of their litigation tactic to ignore the Court’s Order to produce operating expense figures that might be offset against gross receipts. As a consequence of their failure of proof, they should not be entitled to deduct anything from the gross revenues.
III. THE SO-CALLED ‘ACCOUNTING’ PROVIDED BY DEFENDANTS
A. What Was Produced By Defendants
The “accounting” produced by Defendants consists solely of an identification of amounts received directly by Manzarek and Krieger, principally as salary. The Court and Plaintiffs have been provided with a declaration from Mr Goldman identifying the checks and compensation received directly by Manzarek and Krieger from Doors Touring, Inc. (principally paychecks complete with SDI and FICA withholding, and Subchapter “S” distributions), some distribution information from their LLC, and two wire transfers to each from European promoters. Defendants then submit that their “profits” (i.e. salary received) totaled $188,000 from January 1, 2003 through April 18, 2003 (Exhibit A to Goldman declaration), and $1,392,053 thereafter (Exhibit B to Goldman declaration). Exhibits C and D to Mr Goldman’s declaration reflect that the compensation from Doors Touring, Inc. are paychecks, with appropriate withholdings – precisely the type of compensation which the Court indicated was of no moment.
Equally important is the fact that in paragraph 23 of his declaration Mr Goldman states that neither Manzarek nor Krieger paid any of the legal fees in this case, which is consistent with his testimony at trial that the fees were paid by Doors Touring, Inc.
Although many of the revenues relating to that band’s activities have been identified by the Court in paragraph 32 of its Statement Of Decision, in response to the Court’s Order for an accounting the Defendants have not identified a single additional dollar of revenue from those activities. Not a single operating expense of the touring and related activities of “The Doors of the 21st Century” has been provided in response to the Court’s ordered accounting.
B. The “Objection” of Plaintiffs
Plaintiffs “object” to the “accounting” provided, to the extent Plaintiffs are required to do so, on the ground that it wholly fails to comply with the Court’s Order. The “accounting” is the worst form of “game playing.” There is virtually no way, from what was provided by Defendants, to determine the requisite profit calculations as defined and requested by the Court. The objection is made to document Plaintiffs’ acknowledgement of the Defendants’ refusal to comply with the Court’s Order. As for the consequence of the Defendants’ refusal, as discussed below, Plaintiffs accept the Defendants’ “failure of proof” on the issue of operating expenses of the tour and related activities. Plaintiffs believe that as a result of the refusal of Defendants to present evidence of operating expenses, the liability of Manzarek and Krieger should be established at not less than $10,035,000. Anything less rewards them for their arrogance and refusal to comply with the Court’s Order and makes a mockery of these proceedings.
IV. DEFENDANTS MANZAREK AND KRIEGER HAVE REFUSED TO PRESENT EVIDENCE OF THE PROFITS EARNED FROM TOURING AND RELATED ACTIVITIES AND MAY NOT CLAIM ANY DEDUCTION FOR OPERATING EXPENSES.
Plaintiffs are not required now to opine whether Defendants are playing games, are lazy, make poor strategic decisions, or just do no care to present the evidence and accounting ordered by the Court. Suffice it to say that the Court already is aware that there has been generated by the touring and related activities of “The Doors of the 21st Century” and its predecessor, for at least the first 20 months commencing January 2003, gross revenues of not less than $9,500,000 plus tax credits to Manzarek and Krieger and Diamond Night earnings of not less than $535,000 (see paragraph 32 of the Statement Of Decision). Given Defendants refusal to present any evidence of any operating expenses pertaining to touring and related activities, Plaintiffs believe that there is a complete “failure of proof” on the part of Defendants. In light of the Defendants’ decision, Plaintiffs contend that the amount for which Manzarek and Krieger should be liable is $10,035,000 (the amount of revenue already acknowledged by the Court), plus any additional gross revenues that are presented or disclosed at the hearing on September 16. This is the sum of the revenues known to the Court as of the date of its Statement of Decision, and as to which Defendants have not now presented a single off setting operating expense to be considered by the Court or the Plaintiffs.
A. Defendants’ Failure To Produce An Accounting In Response To The Court’s Order Warrants An Award To Plaintiffs Of Defendants’ Gross Receipts.
The Court has ruled that the Defendants must be liable for all of the profits and benefits they have realized as a result of the misappropriation of the partnership’s asset, i.e., the name The Doors, consistent with Corporation Code 15404 (b) (1). Section 16404(b) (1) of the Corporations Code, provides that a partner has the duty “to account to the partnership and hold as trustee for it any property, profit, or benefit derived….from a use by the partner of partnership property…” It is the Defendants’ burden and duty to account.
Where a Defendant has been ordered and fails to account for profits, benefits, and expenses within his exclusive control and knowledge, the court is empowered to base its award upon gross receipts. That is the holding of Rosenfeld, Meyer & Susman v. Cohen, 191 Cal. App. 3d 1035, 1050-53 Cal. Rptr. 14 (1987). In upholding the trial court’s use of a “gross revenue” calculation of profits for distribution among a firm and its departing partners, the Court of Appeal in Rosenfeld was presented with strikingly similar facts to the case at bar. Among the many issues on appeal was that portion of the judgment concerning how profits would be distributed among the partnership and the departing partners on entertainment projects negotiated by the firm prior to its dissolution. Although it would have been a simple matter for the partnership to provide an accounting that differentiated percentage fees according to projects commenced before and after dissolution, the partnership declined to do so. Instead, the trial court concluded, the partnership had deliberately established a method of accounting to frustrate the departing partners’ ability to prove their share of business income.
Based on its analysis of the trial court record, and relying on the “duty to account” obligation of a partner, reflected in the predecessor to Corporations Code 16404, the Rosenfeld Court stated,
“(t)he position of (the firm) was not unlike that of other trustees who fail to keep proper records of the dates and amounts of receipts and expenses; such fiduciaries have the burden of establishing that data and, upon their failure to do so, a computation may be made on the basis of gross receipts, even though that approach is unfavorable to them.” (Emphasis supplied). 191 Cal. App. 3d at 1051.
Citing Larkin v. Jesburg, 191 Cal. App. 2d 272, 277, 12 Cal. Rptr. 655 (1961) (partner cannot escape liability by failing to reproduce records or testimony to account for funds chargeable to him); Kennard v. Glick 183 Cal. App. 2d 246, 250, 7 Cal. Rptr. 88 (1960) (an agent who fails to keep an account creates a presumption against himself, and brings upon the burden of accounting for all that comes into his hands); and Purdy v. Johnson, 174. Cal. 521, 530, 163 P. 893 (1917) (trustees are obligated to render full account of their dealings, and where there has been a failure to keep trust records, or a refusal account, all presumptions will be against trustee). In upholding the trial court’s award of fees on a “gross receipts” basis, the Court of Appeal in Rosenfeld reasoned,
Surely where a fiduciary has a legal duty to allocate receipts between those in which its beneficiary has some interest and those in which the beneficiary has none, and is fully and singularly capable of making that allocation but fails to do so, a court is justified in calling upon the fiduciary to bear the burden of differentiation at trial. This is true, a fortiori, where the fiduciary’s failure is deliberate and for the purpose of frustrating recovery by the beneficiary.
Id at 1051-52
Here, Defendants’ failure to comply with the Courts’ Order is even more egregious. Defendants not only have the statutory obligation to account, they were specifically ordered by this Court to render an accounting of all profits and benefits, together with any operating expenses, by August 16, 2005. Defendants have submitted an accounting that consists solely of an identification of amounts received by Manzarek and Krieger, principally as salary. Unlike the Rosenfeld firm, which claimed it was not capable of making a distinction between profits earned prior to or after dissolution, it is beyond dispute that Defendants have the requisite books and records to satisfy their accounting obligations to the Court and to Plaintiffs. Their failure to provide this information is simply a continuation of the sharp tactics and gamesmanship that have been Defendants’ modus operandi throughout this action. Their willful disregard of and disrespect for this Court’s ruling, amounts to a wholesale failure of proof, and on that basis Plaintiffs and their partnership should be awarded the gross receipts derived from Defendants’ use of the name The Doors.
Rosenfeld is strikingly similar to this case for yet another reason. There, after being faced with the dire consequence of their unsuccessful “hide the ball” litigation tactic regarding the required accounting, which is what Defendants have done here, Rosenfeld sought to reopen the evidence two months after the Statement Of Decision but before entry of judgment, so that it could provide the very data it previously refused to give. In affirming the trial court’s exercise of discretion in denying the motion to reopen the evidence, the Court said,
“The Court concluded that the failure to introduce evidence on the (accounting) issue was neither inadvertent nor excusable, but was the product of a knowing and informed choice of trial tactics.” 191 Cal. App 3d at 1052-53
This is precisely the situation now before the Court. Defendants should now be stuck with their decision not to provide the accounting information requested. They made their bed, and now they should be forced to sleep in it.
B. Application Of Precisely The Same Analysis In Copyright Law.
While Plaintiffs recognize that the instant litigation is not a copyright infringement action, the law regarding the determination of profits in that arena, albeit statutory, is remarkably similar and illustrative. Under Federal law, copyright infringers may be liable to the copyright owner for all profits realized from their unlawful activity. There, the burden of the plaintiff is to introduce evidence of the Defendants’ gross revenues from the infringing activity. It then is the burden of the infringer/wrongdoer to establish relevant and applicable expenses to be deducted from those revenues in determining the amount of profits to which the plaintiff is entitled. See 17 USC 504: Frank Music Corp. vs. MGM, 772 F2d 505, 514-515 (9th Cir. 1985).
The rationale of the copyright law is precisely the same as that which applies to a partnership’s entitlement to profits and benefits as a result of a partner’s misappropriation of assets.
C. The Amount Due Densmore
The Court ordered disgorgement in favor of Densmore of one-third of the amount of profits earned from January 1, 2003 to April 18, 2003. This consisted of six performances. As discussed above the Defendants’ failure of proof of any operating expenses during that period, Densmore should receive one-third of the gross receipts from those concerts. Exhibit 163, the Agency Group’s “Finals By Artist” report, reflects that the gross receipts after taxes received by DTI for those six performances was $1,361,826.00. For sake of simplicity, and because of the inability to calculate merchandise revenues from those six shows, Densmore is willing to accept from Defendants one-third of the content receipts for those six concerts, as defined on Exhibit 163 or $453,942.00.
V. DEFENDANTS’ REQUEST TO PAY ONLY 50% OF THE AMOUNT TO BE DISGORGED IS DISINGENUOUS AND SHOULD BE DENIED
Defendants urge that they should be obligated to pay to the Old Doors Partnership (whose partners are Densmore, Manzarek, Krieger and the Estates) only 50% of that partnership and will simply get back. In their words. “(f)rom an accounting standpoint, it would be superfluous to obligate Manzarek and Krieger to make payments of 100% of the disgorged amount to the Old Doors Oral Partnership, only to have 50% returned to them.” And they urge that from a “legal perspective” the Plaintiffs only can recover the “specific loss which each has suffered.”
What the Defendants conveniently ignore is that (1) the actions were brought individually and on behalf of the partnership, which the Court acknowledged by ordering the disgorgement in favor of the Old Doors Partnership, and (2) that the partnership is a distinct legal entity, with its own powers, rights and obligations. The fact that the funds are paid to a partnership does not necessarily mean that the funds are automatically or immediately disbursed to its partners. It is operating for the partnership, to be used and disbursed as the partnership deems best.
VI. CONCLUSION
For the reasons set forth, and especially given Defendants’ conscious decision not to provide any proper accounting of profits, as directed by the Court, Plaintiffs respectfully request that Manzarek and Krieger be ordered to pay over to Plaintiffs the gross amount of their revenues from touring and related activities, as demonstrated by the evidence adduced to date and to presented at the September 16, 2005 hearing. Plaintiffs contended this amount should be $453,842 to Densmore, and at least $8,673,174. to the Old Doors Partnership) plus such additional gross receipts determined by the Court not to have been included in its earlier calculation of $10,035,000).
(Concurrent with the filing of this Objection, Plaintiffs also are filing a Motion to Add Doors Touring, Inc., As A Judgment Debtor. That motion restates that which is obvious i.e., that the Defendants’ liability is for more than just what was received by them in the way of a “pay check:” from their loan-out corporation, and seeks to add Doors Touring, Inc. “(DTI) as an additional judgment debtor. Although the trial testimony of Alan Goldman was that DTI had no “income”, thus making it basically a worthless potential judgment debtor from an income point of view, it is equally clear that it may have assets that are a “benefit” derived from the misappropriation of the name “The Doors,” on which a constructive must be imposed. In particular, the testimony was that the intellectual property rights of the MTV Japan video of the Defendants’ concert performance was to soon revert to DTI. There may be other assets in the form of intellectual property rights related to DVDs and CDs that should be held in trust for Plaintiffs per Corporations Code 16404, e.g., rights to master recordings. There also many be other income streams about which Plaintiffs are presently unware.)
(Defendants have identified Mr Goldman as one of their two witnesses on September 16. Plaintiffs intend to serve a subpoena on Mr Goldman requesting that he produce at that time all documents reflecting the gross receipts received by Doors Touring, Inc, Diamond Night Productions, LLC, wire transfers to Manzarek and Krieger, and all other documents reflecting the amount paid by promoters, merchandisers and others relating to performances by any band in which Manzarek, Krieger and Astbury from January 1, 2003 to the date of the hearing. Furthermore, as reflected in the accompanying declaration of S. Jerome Mandel, 9, Plaintiffs now are aware that in June 2005, Defendants caused to be created a company known as D21C, Inc. The aforementioned subpoena also will request information regarding the revenues received by that Corporation related to performances by the Defendants for concerts that were scheduled and promoted as of July 22, 2005, the date the Court issued its Statement Of Decision and Order re Permanent Injunction.)
MANDEL, NORWOOD & GRANT
By: Jerome Mandel
Dated August 22 2005
Attorneys for Plaintiff and Cross-Defendant
JOHN DENSMORE and Plaintiffs COLUMBUS AND PEARL M. COURSON
HINOJOSA & WALLET
By: Jeffery Forer
Dated August 22 2005
Attorneys For Plaintiffs GEORGE MORRSON and CLARA MORRISON
