Joanne Siegel et al v. Warner Bros Entertainment Inc et al

Filing 280

MEMORANDUM in Opposition to EX PARTE APPLICATION for Order for Setting Rebuttal Expert Report Date for January 14, 2008; Declaration of Franklin Johnson; Declaration of Anjani Mandavia; Declaration of Michael Bergman 279 filed by Plaintiff Laura Siegel Larson. (Toberoff, Marc)

Joanne Siegel et al v. Warner Bros Entertainment Inc et al

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1 Marc Toberoff (CA State Bar No. 188547)

2 LAW OFFICES OF MARC TOBEROFF, PLC 3 Los Angeles, CA 90067

Nicholas C. Williamson (CA State Bar No. 231124) 2049 Century Park East, Suite 2720 Telephone: [phone] Joanne Siegel and Laura Siegel Larson

4 Facsimile: [phone]

5 Attorneys for Plaintiffs and Counterclaim Defendants 6 7 8 9

UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA-EASTERN DIVISION

JOANNE SIEGEL, an individual; and Case Nos. CV 04-8400 SGL (RZx) CV 04-8776 SGL (RZx) 10 LAURA SIEGEL LARSON, an [Consolidated for Discovery Only] 11 individual, Honorable Stephen G. Larson, U.S.D.J. 12 Plaintiffs, PLAINTIFFS' OPPOSITION TO DEFENDANTS' EX PARTE vs. 13 APPLICATION TO SET REBUTTAL EXPERT REPORT 14 WARNER BROS. DATE FOR JANUARY 14, 2008 ENTERTAINMENT INC., a 15 corporation; TIME WARNER INC., a 16 corporation; DC COMICS, a general 17 partnership; and DOES 1-10,
18 19 20 21 22 23

Defendants DC COMICS, Counterclaimant vs. LAURA SIEGEL LARSON, an

24 JOANNE SIEGEL, an individual; and 25 individual, 26 27 28

Counterclaim Defendants.

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TABLE OF CONTENTS Page(s)

3 INTRODUCTION....................................................................1 4 FACTUAL AND PROCEDURAL BACKGROUND.........................3 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 i
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ARGUMENT..........................................................................7 I. DEFENDANTS ARE NOT ENTITLED TO AN EXTENSION OF TIME FOR THEIR REBUTTAL REPORT PER FRCP 26(a)(2)(C).................................7 DEFENDANTS ARE NOT ENTITLED TO TAKE THE DEPOSITION OF STEVEN SILLS.......................10 DEFENDANTS SHOULD FURNISH SILLS WITH THE VITAL FINANCIAL INFORMATION THEY FAILED TO PROVIDE DURING HIS AUDIT..............11 A. Warner Unreasonably Refused to Provide Documents it Agreed to Provide During the Audit Process.................................................12 1. Warner's Most Current Financial Statements.............................................13 2. Despite Its Representations To The Court, Warner Never Provided the Basis for its Purported Distribution Fee, Interest and Overhead Rates .....................................14

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1 2 3 4 5 6 7 8 9 10

B. DC Refused To Provide Key Financial Information....15 2. DC Never Provided Sills With Sufficient Information To Segregate Foreign and Domestic Revenue and Expenses.....................15 3. DC Refused To Answer Basic Questions Regarding Overlap Between Warner's Statements To DC and DC Internal Financial Reports..................................................16

11 CONCLUSION.....................................................................17 12 13 14 15 FEDERAL CASES 16 17 18 19

TABLE OF AUTHORITIES Page(s)

Jacobsen v. Deseret Book Co., 287 F.3d 936 (10th Cir. 2002).............................................9 STATUTES

20 Fed. R. Civ. Pro. 26............................................................passim 21 22 23 24 25 26 27 28 ii
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1 2

INTRODUCTION Plaintiffs and counterclaim Defendants Joanne Siegel and Laura Siegel

3 Larson respectfully submit the following memorandum opposing Defendants' 4 Ex Parte Application for an Extension of Time ("Application"). In their 5 Application, Defendants demand double the time allotted by F.R.C.P. 26 6 (a)(2)(C) ­ adhered to by all of other rebuttal experts in this case ­ for their 7 financial expert to submit his rebuttal report, while omitting crucial facts 8 concerning Plaintiffs' position and the events leading up to their Application. 9 Simply put, Defendants now seek to extend discovery deadlines applicable to 10 their financial expert after repeatedly touting deadlines to deny the same to 11 Plaintiffs, and continuing to withhold critical information from Plaintiffs' 12 financial expert, Steven Sills ("Sills"). 13

Defendants also conveniently omit that before making their Application,

14 they tried to leverage the misfortune that the home of Plaintiffs' lead counsel, 15 Marc Toberoff, burnt to the ground in the Malibu wildfires on November 23, 16 2007. Declaration of Marc Toberoff in Opposition to Defendants' Ex Parte 17 Application to Set Rebuttal Expert Report Date for January 14, 2008 ("Toberoff 18 Decl."), ¶¶ 34-35. On Monday, November 26, 2007, Mr. Toberoff contacted 19 Defendants' counsel to inform them of the fire and to request a six-week 20 continuance of the trial date in light of this misfortune. Id., ¶ 36. After initially 21 agreeing to this extension, Defendants soon backtracked, refusing to agree 22 unless Plaintiffs made discovery concessions ­ specifically, that Defendants 23 financial expert be given twice the allotted time to submit his report, and that 24 Defendants be permitted to take the deposition of Sills, well after the expert 25 discovery and deposition cut-off. Id., ¶¶ 36-37. 26

Plaintiffs' position is that they would willingly agree to both requests if

27 Defendants would simply remedy a handful of specific unanswered financial 28 audit issues that Defendants had agreed to resolve during Sills' audit. Toberoff 1
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1 Decl., ¶ 37. Such financial information gaps should necessarily be resolved so 2 that both sides' experts and the Court are "dealing with a full deck" and 3 analyzing the same set of financial data in computing Plaintiffs' damages. 4 Whereas the parties' experts may disagree as to the interpretation of this data, at 5 least they will be disagreeing over the same information. Plaintiffs' expert, Sills, 6 should be provided with the same financial information available to Defendants' 7 financial expert. Unfortunately, that has not transpired. Defendants' recalcitrant 8 behavior, which continued during the Court-ordered audit process, handicapped 9 Plaintiffs' damages analysis and breeds distrust. The impact of this imbalance 10 on meaningful settlement discussions cannot be overstated. Id. 11

Though Plaintiffs were willing to reasonably resolve this matter,

12 Defendants flatly refused to address Plaintiffs' simple requests. Id. Defendants 13 then changed their tact, agreed to stipulate to a continuance and filed this ex 14 parte Application. Toberoff Decl., ¶ 38. On December 6, 2007, before being 15 served with the Application, Plaintiffs sent a letter to Defendants outlining their 16 position on the outstanding financial issues for which Sills sought clarification, 17 and in exchange, once again offered to stipulate to the extension of the expert 18 rebuttal deadline and to Sills' deposition. Toberoff Decl., Ex. DD. 19

Leaving aside Defendants' attempts to leverage the destruction of

20 Plaintiffs' counsel's house for tactical concessions, Defendants' position is 21 without merit. Defendants from the outset have been well aware of the issue 22 facing the parties' financial experts, namely the determination of all profits from 23 post-termination Superman and Superboy works. Considering this information 24 has always been within Defendants' control, it makes no sense that they would 25 be starting this analysis only now. In fact, as this financial accounting issue 26 stands at the heart of these cases, Defendants could have submitted their own 27 profit analysis during the initial exchange of expert reports in January, 2007, but 28 2
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1 chose not to do so. Defendants certainly would not have needed a report from 2 Plaintiffs to make these calculations on their own. 3

In light of the Court's request during the September 17, 2007 summary

4 judgment hearing that expert reports be completed "expeditiously," Defendants 5 consistent stonewalling of discovery and holding Plaintiffs' feet to the fire 6 regarding discovery cut-offs, and the fact all relevant information always been 7 within Defendants' sole control, no extra time for Defendants' expert's report is 8 warranted, and none should be granted. 9

As such, Plaintiffs respectfully request that the Court either (a) deny

10 Defendants' Application or (b) grant Defendants' financial expert additional 11 time to submit his report so long as Defendants promptly remedy the continuing 12 gaps in the information provided to Plaintiffs' financial expert. 13 14

FACTUAL AND PROCEDURAL BACKGROUND On May 13, 2005, Plaintiffs served Plaintiffs' Request for Production of

15 Documents and Things to Defendant Warner Bros. Entertainment, Inc., Set One, 16 relating to Plaintiffs' claims and damages. Toberoff Decl., ¶ 2. On May 15, 17 2005, Plaintiffs served Plaintiffs' Request for Production of Documents to 18 Defendant DC Comics ("DC"), Set One, relating to Plaintiffs' claims and 19 damages. Id. Plaintiffs thereafter served Plaintiffs' Second Set of Requests for 20 Production to DC on October 17, 2006 and Plaintiffs' Fourth Set of Requests for 21 Production to Defendants Warner Bros. Entertainment Inc., Warner Bros. 22 Television Inc., Time Warner Inc. (collectively, "Warner") and DC on October 23 18, 2006. Id. 24

On January 12, 2007, Sills timely submitted a 14-page expert report

25 pursuant to F.R.C.P. 26. Toberoff Decl., Ex. B. Therein, Sills carefully 26 analyzed the financial information which had been provided by Defendants. 27 Any gaps in Sills' report were solely due to Defendants' concerted failure to 28 provide Plaintiffs with financial documents in their possession, specifically 3
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1 requested by Plaintiffs by their trade names on Sills' advice. In response to 2 Sills' report Defendants did not submit a substantive rebuttal report by February 3 9, 2007, or otherwise, as prescribed by the scheduling order, nor did they bother 4 to depose Sills by the March 30, 2007 expert discovery cutoff. Id., Ex C. 5

Plaintiffs thereafter submitted a noticed motion to compel the outstanding

6 discovery on April 23, 2007, a hearing on which was held before Magistrate 7 Zarefsky on May 14, 2007. Toberoff Decl., ¶ 7. Magistrate Zarefsky never 8 ruled on Plaintiffs' motion due to the tragedy of his wife's death. Id. On August 9 8, 2007, this Court withdrew the reference to Magistrate Zarefsky. Id. On 10 August 13, 2007, this Court heard further argument regarding Plaintiffs' 11 outstanding motions to compel, and issued an order on that date, directing a 12 damages-related audit of Defendants by Mr. Sills. Id., Ex. E. After Defendants 13 refused to stipulate to reasonably extend the time for Mr. Sills to conduct a bi14 coastal audit, Plaintiffs filed an ex parte application on September 14, 2007, 15 seeking such extension. Id., ¶ 8. Defendants vigorously opposed that 16 application, stressing the looming pre-trial schedule and contending that thirty 17 days was sufficient time to conduct the audit. Id. 18

At the September 17, 2007 hearing on the parties' cross motions for

19 summary judgment, arguments on Plaintiffs' ex parte application were heard and 20 the Court granted Mr. Sills a short extension. Id., Ex. G. Also, at the very end of 21 September 17, 2007 summary judgment hearing, the following was said: 22 23 24 25 26

Mr. Perkins: The only other issue, your Honor, relates to after the audit is completed, a schedule for Mr. Sills to provide us with his report and for us to be able to respond with our expert report and the depositions of those folks. The Court: You should schedule those expeditiously.

27 Toberoff Decl., Ex. F at 128:12-17. 28 4
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1

At no point in the parties' briefing or in oral arguments had the issue of

2 expert depositions been raised. Toberoff Decl., ¶ 9. On October 3 and 4, 2007, 3 e-mails were exchanged between Warner Bros. and Mr. Sills regarding financial 4 information contained in the "ultimates." Id., Exs. H, I. On October 4, 2007, as 5 part of the audit process, Mr. Sills sent e-mails to Warner and (via counsel) to 6 DC, requesting additional documents and information. Id., Ex. J, K. Following 7 up on Mr. Sills' e-mails, on October 4, 2007, Plaintiffs' counsel sent a letter to 8 counsel for both Defendants summarizing key documents and information that 9 Warner and DC had yet to produce. Id., Ex. L. For Warner, these documents 10 included participation statements and a production cost detail/bible for 11 Smallville. Id. On October 8, 2007, Warner responded via e-mail to certain of 12 Mr. Sills' document requests; an additional e-mail was sent on October 9, 2007. 13 Id., Exs. P, R. These e-mails clearly represented that the requested documents 14 would be provided. Id. 15

DC vaguely responded to Plaintiffs audit questions by letter on October 8,

16 2007. Toberoff Decl., Ex. N. In response, Plaintiffs sent a letter dated October 17 8, 2007 once again clarifying the information required inter alia, the breakdown 18 between DC's foreign and domestic profits. Id., Ex. O. On October 22, 2007, 19 Warner sent an e-mail outlining the additional production it would undertake 20 that day. Id., Ex. S. 21

On November 2, 2007, Sills sent an e-mail to his audit contact at Warner

22 requesting documents that Warner had agreed to provide during the audit but 23 had not yet provided. Toberoff Decl., Ex. U. On November 5, 2007, Plaintiffs' 24 counsel sent a letter to Warner's counsel requesting "explanations as to the basis 25 and calculation of the percentages used for the production overhead and 26 distribution fees and interest figures used in the ultimates," noting that Warner 27 had represented to both the Plaintiffs and the Court that such explanations would 28 5
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1 be forthcoming. Plaintiffs' letter also requested other documents Warner had 2 agreed to provide Sills during the audit. Id., Ex. V. 3

Surprisingly, on November 7, 2007, Warner's counsel, Michael Bergman,

4 reneged on Warner's promises and refused to provide the additional 5 documentation promised during Sills' audit. Toberoff Decl., Ex. W. On 6 November 9, 2007, Plaintiffs' counsel discussed with DC's counsel resolving 7 whether Warner's film, television and merchandising statements and payments 8 to DC were reflected in the management summaries provided by DC (i.e., "Blue 9 Books"). Id., ¶ 28. However, on November 13, 2007, DC also refused to clarify 10 or supplement its financial information. Id., Ex. Y. On November 20, 2007, 11 Plaintiffs' counsel sent another letter to Warner's counsel, demanding that 12 Warner provide the documents and information requested and promised during 13 Sills' audit, and that the parties' meet-and-confer regarding this remaining issue. 14 Toberoff Decl., Ex. BB. 15

On Friday, November 23, 2007, Plaintiffs' lead counsel, Marc Toberoff,
1

16 suffered the misfortune of his home burning down with all his possessions in the 17 Malibu wildfires. Toberoff Decl., Ex. CC. On Monday, November 26, 2007, 18 Mr. Toberoff contacted Defendants' counsel to inform them of the situation and 19 to request that they agree to a six-week continuance of the trial date in light of 20 this disaster. Id., ¶ 36. After initially agreeing to this extension, Defendants 21 then backtracked, refusing to agree to such a continuance unless Plaintiffs made 22 additional concessions ­ specifically, granting their expert twice the statutory 23 time to provide a rebuttal report and allowing Defendants to take the deposition 24 of Sills well after the expert discovery and deposition cut-off. Id. 25

On December 4, 2007, the parties met and conferred regarding a six-week

26 continuance of the trial schedule due to the destruction of Mr. Toberoff's home. 27
1 A video clip of the destruction was captured by a local news crew and can be seen at 28 http://video.knbc.com/player/?id=188740.

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1 Toberoff Decl., ¶ 37. Therein, Defendants conditioned their assent to such a 2 continuance on Plaintiffs conceding double the time for Defendants' expert to 3 submit a rebuttal report and agreeing to Sills' deposition, long after the expert 4 deposition cut-off. Id. Notwithstanding Defendants' improper attempt to 5 leverage Mr. Toberoff's misfortune, Plaintiffs stated that they would agree as to 6 both issues if Defendants simply resolved a handful of remaining gaps in 7 financial information requested but not received during Sills' audit to ensure all 8 parties had sufficiently accurate information to conduct meaningful settlement 9 mediation. Id. Defendants once again refused this request. Id. 10

On December 4, 2007, Defendants' counsel Anjani Mandavia informed

11 Plaintiffs' counsel by telephone that Defendants had reconsidered and would 12 stipulate to an extension of the trial date, but would apply ex parte as to their 13 expert's rebuttal report. Id., ¶ 38. Plaintiffs' counsel reiterated that such 14 outstanding discovery issues could be reasonably resolved between counsel. Id. 15 On December 6, 2007, before service of Defendants' application, Plaintiffs sent 16 a letter to Defendants outlining their position and advocating informal resolution 17 of open issues. Toberoff Decl., Ex. DD. Defendants had nonetheless filed their 18 ex parte Application. 19 20 21 22 23 24 25 26 27 28

I.

ARGUMENT DEFENDANTS ARE NOT ENTITLED TO AN EXTENSION OF TIME FOR THEIR REBUTTAL REPORT PER F.R.C.P. 26(a)(2)(C) Defendants, after endlessly stonewalling the production of financial

documentation relating to Plaintiffs' damages; after forcing Plaintiffs to bring several motions to compel such information; after continuing with their dilatory tactics during the Court-ordered audit; after opposing a reasonable extension of time for Sills to gather the financial information which Defendants were obligated to have long ago produced; after refusing to provide documents they previously agreed to furnish Sills, and after refusing to answer basic questions concerning the scope of their financial reports, now seek double the statutory
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1 time allotted for their financial expert to provide a rebuttal expert report. 2 Toberoff Decl., ¶¶ 2-39. Their Application cannot be viewed in isolation: 3 Defendants have consistently touted the "looming" trial and pre-trial schedule, 4 and taken the position that deadlines are absolute when applied to Plaintiffs' 5 reasonable discovery requests. 6

Defendants ask to submit a rebuttal report by January 14, 2008 in

7 contravention of the 30-day rebuttal deadline prescribed by F.R.C.P. 8 26(a)(2)(C). Moreover, the parties previously utilized this 30-day rebuttal 9 period for all of their other expert witnesses in the case. Toberoff Decl., ¶ 5. 10 Defendants' request is particularly improper considering they are well aware of 11 the issue facing the parties' financial experts, namely the determination of 12 Defendants' profits from post-termination (17 U.S.C. §304(c)) Superman and 13 Superboy works. Considering this information has been in Defendants' sole 14 control throughout this litigation, it makes no sense that they would be starting 15 this analysis now. In fact, Defendants could have submitted their own profit 16 analysis during the initial exchange of expert reports in January, 2007, but chose 17 not to do so. Whereas, Sills' initial 14-page expert report thoroughly analyzed 18 the financial information provided by Defendants as of January 12, 2007; the 19 "rebuttal report" of Defendants' expert consisted of a mere statement that he was 20 unable to rebut the Sills' report in its incomplete condition ­ a condition which 21 directly resulted from Defendants' pervasive discovery abuse. Id., Exs. B, C. 22

As to Defendants' contention that Plaintiffs' report was somehow

23 untimely, or that F.R.C.P. 26 no longer applies, under F.R.C.P. 26(a)(2)(C), 24 expert reports are due "at least 90 days before the date set for trial" only if there 25 is no court order. Thus, Defendants' position that Plaintiffs' expert report was 26 somehow late is deficient for three reasons. Firstly, Sills' expert report was 27 provided more than 90 days before trial ­ specifically, it was initially provided 28 to Defendants on January 12, 2007 pursuant to the November 16, 2007 8
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1 stipulation and order, analyzing the spotty financial data Defendants had 2 provided. Id., Exs. A, B. The November 13, 2007 report was expressly a 3 supplement to Sills' report after Defendants were compelled to provide 4 additional information in the Court-ordered audit. 5
2

Secondly, Defendants' position makes a mockery of the Court's

6 September 17, 2007 order setting October 9, 2007 as the deadline for Mr. Sills to 7 conduct his audit. Under Defendants' logic, Sills' expert report would have 8 been due on October 24, 2007, leaving him only two weeks to complete his 9 report after gathering the relevant financial data in the audit process. This 10 position was taken despite the fact that Defendants expressly acknowledged the 11 need for "a schedule for Mr. Sills to provide us with his report" after the audit 12 was completed. Toberoff Decl., Ex. F at 128:13. 13

Thirdly, Defendants were still delivering audit documents to Plaintiffs as

14 late as October 22, 2007. Toberoff Decl., Ex. S. Under Defendants' logic, Sills 15 would have had only two days from the final delivery of relevant materials to 16 production of a final report. Defendants' position is nonsensical: the 17 combination of Defendants' delayed production of audited materials, the Court's 18 ordering of the audit and Defendants' own position at the September 17, 2007 19 hearing clearly show that the "90 day requirement" was not operative. 20

Finally, the declaration of Defendants' expert Franklin Johnson states that

21 "the Sills report seems to contain certain revenue and expense numbers...which 22 do not correspond with the revenue and expense number we have been able to 23 determine from our review" and while requesting additional time, gives no 24 indication that Defendants' 30-day delay is primarily due to such purported 25 Experts have a continuing duty to supplement their report. F.R.C.P. 26(e)(2) ("For an expert 26 whose report must be disclosed under Rule 26(a)(2)(B), the party's duty to supplement extends both to information included in the report and to information given during the expert's 27 deposition.") See Jacobsen v. Deseret Book Co., 287 F.3d 936, 952 (10th Cir. 2002) ("A party is under a continuing duty to supplement the expert report if there are additions or 28 changes to what has been previously disclosed.") 9
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1 discrepancies, nor any indication that such could even be reconciled. 2 Declaration of Franklin Johnson, filed December 6, 2007, ¶ 4. 3

Any delay surrounding the supplementation of Sills' expert report was

4 fundamentally caused by Defendants' strategic decisions to stonewall and delay 5 the production of clearly relevant financial information. To excuse Defendants 6 from deadlines that they themselves have consistently and harshly applied to 7 Plaintiffs would simply be unfair. 8 9 10

II.

DEFENDANTS ARE NOT ENTITLED TO TAKE THE DEPOSITION OF STEVEN SILLS Defendants, while not applying to the Court on those grounds, also

11 attempt to introduce the contested issue of expert depositions into their 12 application. See Defendants' Ex Parte Application to Set Rebuttal Expert 13 Report Date at 4:28-5:1 (referring to "allowing the parties sufficient time for 14 expert depositions.") Moreover, during the parties' discussions, the additional 15 time for the expert rebuttal report was directly tied to the issue of expert 16 depositions. Toberoff Decl., ¶ 36-37. As such, Defendants' Application presents 17 the chance that the issue would be decided without adequate briefing. 18

Plaintiffs' position is that Defendants are not entitled to take the

19 deposition of Sills. Sills was designated by Plaintiffs and submitted his initial 20 expert report on January 12, 2007, both well within the deadlines for same, 21 providing Defendants with more than ample time to take Sills' deposition before 22 the March 30, 2007 cut-off for expert depositions. Toberoff Decl., Ex. B. 23 Defendants should not now be heard to complain that Mr. Sills' January 12, 24 2007 report was incomplete, as it is well documented (even in the report itself) 25 that the sole reason for this was Defendants' consistent failure to produce the 26 relevant financial documents even though such documents were clearly relevant, 27 in Defendants' possession and requested by Plaintiffs on Sills' advice by 28 Defendants' own trade names. Notwithstanding Defendants' abuse, Sills' 10
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1 January 12, 2007 report still carefully covered the financial documents that had 2 been produced by Defendants as of that date. Yet, Defendants chose not to 3 submit a substantive rebuttal report of their own by February 9, 2007, nor to 4 depose Mr. Sills by the March 30, 2007 deposition cut-off, essentially affirming 5 both the scope as well as the absurdity of their own discovery abuse. Toberoff 6 Decl., Exs. B, C. 7

Defendants' consistent obfuscation and delay, necessitating multiple

8 motions to compel, culminated in Sills' court-ordered audit. There is no reason, 9 particularly given Defendants' clear discovery abuse and intentional delay, that 10 they should now be accorded special privileges to take Mr. Sills' depositions 11 over 8 months after the March 30, 2007 cut-off. Any questions Defendants have 12 of Mr. Sills can certainly be raised at trial. 13 14 15 16

III.

DEFENDANTS SHOULD FURNISH SILLS WITH THE VITAL FINANCIAL INFORMATION THEY FAILED TO PROVIDE DURING HIS AUDIT Defendants' Application elides further reasons Plaintiffs refused to agree

17 to an extended rebuttal period. As it stands, Plaintiffs' expert, Sills, was unable 18 in his audit to resolve important issues pertaining to his financial analysis due to 19 Defendants refusal to provide key information requested by him and Plaintiffs, 20 obviously impacting both Plaintiffs' trial preparation and ability to entertain 21 meaningful settlement discussions. Toberoff Decl., Exs. V-Y, BB, DD. Most 22 notably, DC, while claiming that it is accountable for only domestic profits from 23 Superman, refused to provide documentation or information which would enable 24 Sills to distinguish between foreign and domestic revenue and expenses for key 25 DC divisions. Toberoff Decl., Exs. L, N, O. DC also refused to clarify whether 26 the revenues set forth in its internal financial reports ("Blue Books") include 27 DC's profit participations from Warner for film and television exploitation 28 and/or DC's merchandising revenues from Warner Bros. Consumer Products, 11
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1 when the numbers in DC's Blue Books and Warner's statements differed 2 significantly. Id., ¶ 28, Exs. X, Y. 3

Warner similarly refused to provide any basis for the percentage rates

4 used for purported distribution fees, overhead and interest even though it had 5 represented to Sills and the Court that it would do so; and Warner also refused 6 to provide its latest financial statements to DC even though it promised Sills it 7 would do so. Id., Ex. M, W. 8

Without this information, Plaintiffs are still handicapped in their ability to

9 fully calculate their damages, hindering productive settlement negotiations. 10 Toberoff Decl., ¶ 37. Plaintiffs were thus unwilling to agree to an extension of 11 time for Defendants to comply with their expert discovery obligations unless 12 they agreed to address the outstanding gaps in the financial information provided 13 to Sills during the audit process, particularly in light of the parties' pending 14 settlement mediation. Plaintiffs' counsel summarized this in a telephone 15 conversation with Defendants' counsel on December 4, 2007 and again by letter 16 dated December 6, 2007. Toberoff Decl., Ex. DD. 17

Given the nature and number of outstanding issues, Plaintiffs refused to

18 accede to Defendants' demands so long as they refused to discuss these other 19 outstanding discovery issues. 20 21 22

A.

Warner Unreasonably Refused to Provide Documents It Agreed to Provide During the Audit Process

Warner has (i) failed to provide updated financial participation statements

23 pertaining to Superman Returns, Smallville, Superman Animated: Year 3, Justice 24 League, Krypto, Science of Superman, Legion of Superheroes, Superman 25 Doomsday and Superman II: Donner Cut, despite confirming to Sills during the 26 audit process that it would do so; and (ii) failed to provide the basis for the 27 percentage rates used in the distribution fees, production cost overhead, and 28 12
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1 interest assessed in its "ultimates," despite representing to Sills and the Court 2 that it would do so. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21

1.

Warner's Most Current Financial Statements

The documents at issue are as follows: · Warner agreed to provide its most recent and critical participation statements to DC for Superman Animated: Year 3, Science of Superman, Legion of Superheroes, Superman Doomsday, and Superman II: Donner Cut, in Eric Birth's October 9, 2007 e-mail that expressly stated that "we [Warner] will provide these [participation statements] to you once they are ready in the ordinary course." · Warner also agreed to produce the "June 30, 2007 participation statements for all third party participants" for Superman Returns, Justice League, and Krypto, not simply those that had been generated as of October 9, 2007, in an e-mail dated October 8, 2007, from Warner's Amie Doft. However, the June 30, 2007 participation statements for Superman Returns for JP Organization (Jon Peters), Chris Lee Productions, Minor Demons & Danimal, and Gil Alder Productions were not provided. · Warner agreed to provide a "production cost detail/bible" in an e-mail from Eric Birth dated October 8, 2007 that stated "[w]e anticipate delivering this to you tomorrow." Warner instead produced a "production cost report." None of these undertakings were qualified or limited to documents

22 Toberoff Decl., Exs P, R. 23

24 generated on or before October 9, 2007. Whether or not the documents were 25 created before or shortly after October 9, 2007 is of no moment; Defendants 26 agreed to provide them to Sills as part of his audit. Yet, by letter dated 27 November 7, 2007, Warner's counsel, Michael Bergman, reneged and took the 28 unreasonable position that Warner would not produce any documents not 13
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1 generated on or before October 9, 2007, even though that timing was within 2 Warner's sole control. This position is transparently at odds with the 3 representations in Warner's e-mails during the audit process, specifically Mr. 4 Birth's agreement to provide participation statements "once they are ready in the 5 ordinary course." Id., Ex. R, at p. 3. Additionally, it is contrary to Defendants' 6 continuing duty to supplement discovery. See F.R.C.P. 26(e)(1) (A) (a party 7 supplement its disclosure "in a timely manner if the party learns that in some 8 material respect the disclosure or response is incomplete or incorrect, and if the 9 additional or corrective information has not otherwise been made known to the 10 other parties during the discovery process or in writing.") 11 12 13 14

2.

Despite Its Representations To The Court, Warner Never Provided the Basis for its Purported Distribution Fee, Interest and Overhead Rates

In a September 28, 2007 e-mail, Sills requested the "basis and supporting

15 documentation" for the rates used in percentage-based distribution fees, 16 production cost overhead, and interest in Warner's "ultimates," a request that 17 Warner declined to answer. Toberoff Decl., Ex. H, I. In the October 5, 2007 18 Declaration of Michael Bergman ISO Defendants' Opposition to Plaintiffs' Ex 19 Parte Motion for Production of the Ultimates, Bergman represented to the Court 20 that "Defendants produced documentation containing the backup information 21 requested by Mr. Sills ­ cash flows related to the ultimates, and Ms. Doft 22 answered Mr. Sills' questions regarding the bases for the percentages used in the 23 ultimates calculation." Toberoff Decl., Ex. M at p. 5:20-25. This language was 24 adopted by the Court in its Minute Order of October 23, 2007 referring to this 25 "un-rebutted representation." Toberoff Decl., Ex. T, at p. 5, fn. 1. However, 26 Bergman's representation was incorrect; and Plaintiffs had no opportunity to 27 rebut it as it was first brought up by Defendants' Opposition to Plaintiffs' ex 28 parte application. 14
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Whereas Warner provided Sills with "cash flows" to which it applied a
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2 fixed interest rate, it failed to provide the basis for the interest rate or to 3 demonstrate that this is the actual interest rate/cost incurred by Warner. An 4 earlier e-mail had stated that "the other inquiries you have made are the subject 5 of discussions between counsel." Toberoff Decl., Ex. I. That was it. Neither 6 response, as Defendants well knew, answered Sills' questions as to the 7 percentage rates applied as distribution fees, production cost overhead, and 8 interest charges, information critical to Defendants' calculation of profits. 9 Despite letters sent by Plaintiffs November 5 and November 20, 2007, 10 Defendants continued to refuse to answer Plaintiffs' legitimate requests, made 11 during the audit process. 12 13 14 15

B.

DC Refused To Provided Key Financial Information 1. DC Never Provided Sills With Sufficient Information To Segregate Foreign and Domestic Revenue and Expenses

With respect DC's "Publishing," "Retail Products" and "Publishing

16 Division ­ Media," the information provided by DC, despite Sills' and 17 Plaintiffs' repeated requests, does not offer any breakdown whatsoever between 18 foreign and domestic revenue and expenses, even though DC has claimed that 19 Plaintiffs are only entitled to domestic profits. As such, Sills was unfairly 20 handicapped, and could not make the distinction between DC's domestic and 21 foreign profits in his report. 22

These issues were expressly raised in an e-mail by Sills forwarded to

23 James Weinberger on October 4, 2007, as well as a letter from Marc Toberoff 24 sent that same day, and an October 8, 2007 letter from Marc Toberoff to James 25 Specifically, the only "explanation" for the cash flows was provided in an e-mail dated October 3, 2007, from Warner's Amie Doft to Sills which reads as follows: 27 "It is my understanding that the cash flows related to the ultimates, which include the interest calculations, are being produced today directly to 28 Plaintiffs' counsel. Therefore, you can obtain these documents from him." Toberoff Decl., Ex. I. 15 26
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1 Weinberger, all before the deadline for Sills audit. Toberoff Decl., Exs. K, L, N. 2 Nonetheless, DC has never offered any documentation or explanation as to how 3 it distinguishes between foreign and domestic revenues and expenses, stating 4 only that it is prepared to demonstrate such items at trial. Plaintiffs duly 5 requested this information both prior to and during the audit process and are 6 squarely entitled to it. The Federal Rules of Civil Procedure militate against 7 such surprise tactics. See F.R.C.P. 26. 8 9 10 11

2.

DC Refused To Answer Basic Questions Regarding Overlap Between Warner's Statements To DC and DC Internal Financial Reports

With respect to DC's "Publishing Division ­ Media" and

12 "Merchandising" divisions, the figures contained in DC's internal financial 13 summaries or "Blue Books" did not correspond to the figures in Warner's 14 statements to DC regarding the film, television or merchandising exploitation of 15 Superman. Additionally, with respect to DC as a whole, "General and 16 Administrative Expenses" were charged to a wide variety of products, but were 17 not broken down by title or property. In essence, and as reiterated in Plaintiffs' 18 letter of December 6, 2007 (Toberoff Decl., Ex. DD), Plaintiffs require the 19 following information: 20 21 22 23 24 25 26 27 28

· Whether DC's "Blue Books" relating to their "Publishing Division ­ Media" include or exclude Warner's film and television participation payments to DC, and, if those payments were included, that DC provide whatever documentation it has that reconciles the large discrepancies between DC's statements and Warner's statements to DC. · Whether DC's "Blue Books" relating to their "Marketing" division include or exclude Warner Bros. Consumer Product's payments to DC, and, if those payments were included, that DC provide whatever documentation it has that reconciles the large discrepancies between the
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two. See also Plaintiffs' November 9, 2007 email to Defendants; Toberoff Decl., Ex. X. · The allocation of DC's general and administrative expenses to its Superman titles. After consistent stonewalling and failing to duly provide this information during discovery and thereafter, during Sills' audit, DC's sole rationale for refusing to provide this information, vital to Plaintiffs' proper assessment of damages, was "Discovery is over. The damages-related audit is over. We will not be responding to this or additional inquiries of this nature." Toberoff Decl., Ex. Y. Defendants refused to even discuss responding to Plaintiffs' simple inquiries, even though doing so would have obviated the need for their instant Application. CONCLUSION In light of the above, Plaintiffs respectfully request that (a) Defendants' Application that its financial expert be granted twice the allotted time to submit his rebuttal report be denied, or, in the alternative, if granted, that the Court also (b) provide that the inquiries of Plaintiffs' financial expert, Sills, which were not properly answered by Defendants during his Court-ordered audit, be promptly responded to and documented by Defendants. Dated: December 10, 2007 LAW OFFICES OF MARC TOBEROFF, PLC By: / /s/ Marc Toberoff /

Attorneys for Plaintiffs and Counterclaim Defendants Joanne Siegel and Laura Siegel Larson

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