Case 2:16-cv-04543-JAK-SK Document 228 Filed 01/05/18 Page 1 of 19 Page ID #:5860 1 2 3 4 5 6 7 Neville L. Johnson (SBN 66329) Arun Dayalan (SBN 225255) Alec R. Govi (SBN 313243) JOHNSON & JOHNSON LLP 439 North Canon Drive, Suite 200 Beverly Hills, California 90210 Telephone: (310) 975-1080 Facsimile: (310) 975-1095 Email: njohnson@jjllplaw.com adayalan@jjllplaw.com agovi@jjllplaw.com 8 9 10 Attorneys for Plaintiff-Intervenors William Klein, Jennifer Arnold, and Candu Enterprises, Inc. 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA LMNO CABLE GROUP, INC., a California corporation, CASE NO.: 2:16-cv-4543-JAK-SK Plaintiff, PLAINTIFF-INTERVENORS’ EX PARTE APPLICATION FOR TEMPORARY RESTRAINING DISCOVERY COMMUNICATIONS, LLC, a Delaware limited liability company, ORDER; MEMORANDUM OF POINTS AND AUTHORITIES Defendants. [Supporting Declarations of Neville ________________________________ L. Johnson and Jennifer J. McGrath, [Proposed] Temporary Restraining DISCOVERY COMMUNICATIONS, LLC, a Delaware limited liability company, Order filed concurrently] Counterclaim Plaintiff, Hon. John A. Kronstadt v. Date: n/a LMNO CABLE GROUP, INC., a Time: n/a California corporation, LMNO ENTERTAINMENT GROUP, LLC, a Location: Courtroom 10B California limited liability company, v. Counterclaim Defendants. ________________________________ EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER Case 2:16-cv-04543-JAK-SK Document 228 Filed 01/05/18 Page 2 of 19 Page ID #:5861 1 2 3 4 5 6 7 8 WILLIAM KLEIN, an individual; JENNIFER ARNOLD, an individual; and CANDU ENTERPRISES, INC., a Texas corporation; Plaintiff-Intervenors, v. LMNO CABLE GROUP, INC., a California corporation; ERIC SCHOTZ, an individual; and EDWARD HORWITZ, an individual, Defendants. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER Case 2:16-cv-04543-JAK-SK Document 228 Filed 01/05/18 Page 3 of 19 Page ID #:5862 1 TO THE HONORABLE JOHN A. KRONSTADT AND ALL PARTIES AND 2 THEIR ATTORNEYS OF RECORD: 3 PLEASE TAKE NOTICE THAT Plaintiff-Intervenors William Klein, 4 Jennifer Arnold, and Candu Enterprises, Inc. (“Plaintiff-Intervenors”) seek ex parte 5 relief for an order for a preliminary injunction pursuant to Fed. R. Civ. P. 65, 6 restraining and enjoining, LMNO Cable Group, Inc. and LMNO Entertainment 7 Group, LLC, and all those in active concert or participation with them, from 8 entering into any settlement agreement which transfers any intellectual property 9 rights and ownership rights to the television program The Little Couple from 10 LMNO Cable Group, Inc. and/or LMNO Entertainment Group, LLC to any person 11 or entity. 12 This application will be made on the ground that immediate and irreparable 13 injury will result to Plaintiff-Intervenors unless the activities described above are 14 enjoined pending trial of this action, and will be based on this Notice of Motion and 15 Motion, the accompanying Memorandum of Points and Authorities, and the 16 declarations of Neville L. Johnson and Jennifer J. McGrath filed concurrently. 17 This Application is made on the ground that good cause justifies the granting 18 of this Application. Specifically, as set forth in Plaintiff-Intervenors’ seventh claim 19 for relief against the LMNO entities, there is a controversy over the whether 20 Plaintiff-Intervenors are entitled to retain all of their intellectual property rights and 21 ownership rights in and to the Program which Plaintiff-Intervenors purported to 22 grant, assign or license to LMNO under the terms of the LMNO Agreements. Any 23 settlement between LMNO and Discovery which transfers these rights will cause 24 irreparable harm to Plaintiff-Intervenors. 25 This Application is made after providing notice to counsel for LMNO Cable 26 Group, Inc., LMNO Entertainment Group, LLC, Discovery Communications, LLC, 27 Eric Schotz, and Edward Horwitz as required by L.R. 7-19.1, as explained in the 28 1 EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER Case 2:16-cv-04543-JAK-SK Document 228 Filed 01/05/18 Page 4 of 19 Page ID #:5863 1 2 accompanying Declaration of Neville L. Johnson. The contact information of counsel for all other parties is: 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 LMNO Cable Group, Inc. and LMNO Entertainment Group, LLC: Peter Morris Peter.morris@btlaw.com Stephen R. Mick smick@btlaw.com 2029 Century Park East, Suite 300 Los Angeles, CA, 90067 Phone: (310) 284-3880 Fax: (310) 284-3894 Discovery Communications, LLC Scott A. Edelman sedelman@gibsondunn.com Nathaniel L. Bach nbach@gibsondunn.com 2029 Century Park East, Suite 4000 Los Angeles, CA, 90067 Phone: (310) 552-8500 Fax: (310) 551-8741 Eric Schotz Peter Morris Peter.morris@btlaw.com Stephen R. Mick smick@btlaw.com 2029 Century Park East, Suite 300 Los Angeles, CA, 90067 Phone: (310) 284-3880 Fax: (310) 284-3894 Edward Horwitz Charles L. Kreindler ckreindler@sheppardmullin.com 333 South Hope Street, 43rd Floor Los Angeles, CA, 90071 Phone: (213) 620-1780 Fax: (213) 620-1398 None of these entities or individuals indicated whether or not they would oppose Plaintiff-Intervenors’ Ex Parte Application. This Application is based on this Notice, the accompanying Memorandum of 26 Points and Authorities, the Declarations of Neville L. Johnson and Jennifer J. 27 McGrath, the pleadings and papers on file herein, and on such other matters as may 28 2 EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER Case 2:16-cv-04543-JAK-SK Document 228 Filed 01/05/18 Page 5 of 19 Page ID #:5864 1 be presented to the Court at the time of hearing. 2 3 DATED: January 5, 2018 JOHNSON & JOHNSON LLP 4 5 6 7 By /s/ Neville L. Johnson Neville L. Johnson Attorneys for Plaintiff-Intervenors William Klein, Jennifer Arnold, and Candu Enterprises, Inc. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 3 EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER Case 2:16-cv-04543-JAK-SK Document 228 Filed 01/05/18 Page 6 of 19 Page ID #:5865 1 TABLE OF CONTENTS 2 3 4 5 6 7 8 9 10 11 12 13 14 15 TABLE OF AUTHORITIES 16 17 18 19 20 21 22 23 24 25 26 27 28 4 EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER Case 2:16-cv-04543-JAK-SK Document 228 Filed 01/05/18 Page 7 of 19 Page ID #:5866 1 2 3 MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION Pursuant to Local Rule 7-19 and Federal Rule of Civil Procedure 65, 4 Plaintiff-Intervenors seek a temporary restraining order (TRO) restraining and 5 enjoining LMNO Cable Group, Inc. and LMNO Entertainment Group, LLC 6 (together, “LMNO”), and all those in active concert or participation with them, 7 from entering into any settlement agreement which transfers any intellectual 8 property rights and ownership rights to the television program The Little Couple 9 from LMNO Cable Group, Inc. and/or LMNO Entertainment Group, LLC to any 10 11 other person or entity. Plaintiff-Intervenors have acted as diligently as possible in bringing this 12 application for a TRO. Plaintiff-Intervenors first learned of settlement discussions 13 between LMNO and Discovery Communications, LLC (“Discovery”) during a 14 phone call with Discovery’s counsel on December 21, 2017. 15 Plaintiff-Intervenors are concerned that the impending settlement will 16 include a transfer of intellectual property rights to the television program The Little 17 Couple. In this litigation, Plaintiff-Intervenors contend that LMNO’s failure to 18 perform its material obligations under certain contracts -- including, without 19 limitation, its fraudulent reporting of costs and revenues derived from the Program 20 and payable to Plaintiff-Intervenors -- has resulted in Plaintiff-Intervenors owning 21 certain intellectual property rights in and to the Program. Plaintiff-Intervenors 22 further contend that as a result of LMNO’s conduct, Plaintiff-Intervenors have 23 retained all of their intellectual property rights and ownership rights in and to the 24 Program, which Plaintiff-Intervenors previously purported to grant, assign or 25 license to LMNO under the terms of the LMNO Agreements. 26 27 Consequently, Plaintiff-Intervenors respectfully request that the Court issue a TRO prohibiting the transfer of any intellectual property rights in the television 28 5 EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER Case 2:16-cv-04543-JAK-SK Document 228 Filed 01/05/18 Page 8 of 19 Page ID #:5867 1 program The Little Couple from LMNO to any other party, person, or entity 2 pending the trial of this matter in June 2018. 3 Plaintiff-Intervenors will be irreparably prejudiced if the Court does not issue 4 the requested TRO, as the subject matter of Plaintiff-Intervenors’ claims against 5 LMNO, the intellectual property rights to The Little Couple, may be transferred or 6 assigned by LMNO. 7 II. STATEMENT OF FACTS 8 A. Allegations of the First Amended Complaint in Intervention 9 Plaintiff-Intervenors Jennifer Arnold and William Klein are featured in a 10 reality television program entitled The Little Couple (“the Program”), currently in 11 its ninth season, which was co-produced by Plaintiff and Counterclaim-Defendant 12 LMNO Cable Group, Inc. (“LMNO”) and Defendant and Counterclaim-Plaintiff 13 Discovery Communications, LLC (“Discovery”). FAC, ¶¶ 1-5. Plaintiff- 14 Intervenor Candu Enterprises, Inc. is Klein’s and Arnold’s loan-out corporation. Id. 15 at ¶ 25. 16 Between 2008 and 2014, Plaintiff-Intervenors obtained rights to a percentage 17 of LMNO’s contingent compensation in the Program, and they conveyed certain of 18 their intellectual property rights to LMNO in return. Id. at ¶¶ 42-46. In 2014, 19 Intervenors also entered into an agreement directly with Discovery which provided 20 them with compensation from various forms of exploitation of the Program out of 21 Discovery’s share of revenues. Id. at ¶¶ 47. 22 As detailed in Plaintiff-Intervenors’ First Amended Complaint in 23 Intervention, LMNO engaged in systematic fraud against them and Discovery by 24 grossly inflating purported expenses, falsifying accounting documents, and falsely 25 contending that no contingent compensation was due to Plaintiff-Intervenors. FAC 26 at ¶¶ 52-72. Eric Schotz, LMNO’s current President and CEO, and Edward 27 Horwitz, LMNO’s Former Executive Vice President, directly participated in this 28 6 EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER Case 2:16-cv-04543-JAK-SK Document 228 Filed 01/05/18 Page 9 of 19 Page ID #:5868 1 fraudulent scheme. Id. 2 On June 17, 2016, Discovery sent LMNO notices of termination of 3 Discovery’s agreements with LMNO relating to certain programs, including The 4 Little Couple. FAC at ¶ 64. Apparently in response, on June 24, 2016, LMNO 5 filed suit against Discovery. On August 1, 2016, Discovery counter-sued, alleging 6 that LMNO has engaged in massive, systematic and secretive fraud and 7 malfeasance. Id. at ¶ 65. 8 9 The Complaint in Intervention alleges a claim for declaratory relief against LMNO. FAC, ¶¶ 138-142. The claim alleges that there “is an actual and justiciable 10 controversy between Plaintiffs, on the one hand, and Defendant LMNO, on the 11 other, as to whether LMNO’s failure to perform its material obligations under the 12 LMNO Agreements—including, without limitation, its fraudulent reporting of costs 13 and revenues derived from the Program and payable to Plaintiffs—has resulted in 14 Plaintiffs owning certain intellectual property rights in and to the Program.” FAC, ¶ 15 139. 16 Plaintiffs further allege “that as a result of LMNO’s scheme to systematically 17 defraud Plaintiffs, falsify accounting records, and fail to pay Plaintiffs their required 18 portion of contingent compensation and/or Distributable proceeds from the 19 Program, Plaintiffs thereby retain all of their intellectual property rights and 20 ownership rights in and to the Program, which Plaintiffs purported to grant, assign 21 or license to LMNO under the terms of the LMNO Agreements.” FAC, ¶ 140. 22 B. Plaintiff Intervenors Are Likely to Prevail on the Merits of their 23 24 Declaratory Relief Claim Plaintiff-Intervenors conveyed their intellectual property rights, including, 25 inter alia, their copyright and name and likeness in connection with the 2008 Option 26 Agreement between them and LMNO. FAC, ¶ 7. Thus, in exchange for various 27 forms of upfront compensation and a percentage of LMNO’s contingent 28 7 EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER Case 2:16-cv-04543-JAK-SK Document 228 Filed 01/05/18 Page 10 of 19 Page ID #:5869 1 compensation, Plaintiff-Intervenors conveyed their valuable intellectual property 2 rights. Id. 3 In the course of discovery in this litigation, however, it has become clear that 4 LMNO engaged in systemic fraud, consistently misrepresenting to Plaintiff- 5 Intervenors amounts of contingent compensation owed to them, to the tune of 6 hundreds of thousands of dollars fraudulently withheld from Plaintiff-Intervenors. 7 This blatant fraud entitles Plaintiff-Intervenors to rescission and the return of their 8 intellectual property rights in the Program. 9 Defendants erroneously claimed—over the course of nine seasons of the 10 production and distribution of the Program—that no contingent compensation was 11 due to Plaintiff-Intervenors because LMNO’s purported production “deficit” was so 12 high that it reduced LMNO’s contingent compensation, and by extension Plaintiff- 13 Intervenors’ entitlement to a portion of LMNO’s contingent compensation to zero. 14 Johnson Decl. ¶ 8, Deposition of Defendant Edward Horwitz, Volume 3 at 450:16 – 15 451:23, attached as Exhibit 4 to Johnson Decl. 16 Mr. Horwitz has testified that he, on behalf of LMNO, transmitted 17 participation statements to Plaintiff-Intervenors which referenced large purported 18 producer deficits. Id. In fact, however, whistleblower Paul Ikegami has testified 19 (and produced internal LMNO documents in his possession) which show that 20 LMNO actually produced the Program for far less than the amounts which it 21 received from Discovery, i.e., it had no producer deficit at all. Johnson Decl. ¶ 9 22 (Deposition of Paul Ikegami (“Ikegami Depo.”) at 53:11-23, attached as Exhibit 5 23 to Johnson Decl. 24 Moreover, LMNO, in its Supplemental Discovery Responses (as well as 25 Defendant Horwitz during his deposition) have acknowledged that LMNO did not 26 in fact track its own purported expenditures, if any, in connection with the Program. 27 Johnson Decl. ¶ 10, Deposition of Defendant Edward Horwitz, Volume 1 at 41:11- 28 8 EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER Case 2:16-cv-04543-JAK-SK Document 228 Filed 01/05/18 Page 11 of 19 Page ID #:5870 1 15, attached as Exhibit 6 to Johnson Decl. Rather, LMNO contends that it 2 contributed overhead and employee time as its “contribution” to the Program, but 3 did not track the precise amounts which is “contributed” to any particular program, 4 including The Little Couple. In other words, LMNO has no basis for the amounts 5 of its producer’s deficit which were reported to Plaintiff-Intervenors. There is no 6 evidence (and LMNO can point to none) that the millions of dollars reported to 7 Plaintiff-Intervenors over several years as monies spent by LMNO on the 8 production of the Program were in fact ever actually spent by LMNO. In fact, in 9 connection with another program that LMNO co-produced with Discovery, LMNO 10 simply tried to “re-create” amounts it purportedly spent by moving certain company 11 overhead into the books of that program. Johnson Decl. ¶ 8, Exhibit 6 (Horwitz 12 Depo, V. I. at 118:1-15). 13 Most egregious, Mr. Ikegami testified in no uncertain terms that he was 14 called upon by Mr. Schotz and LMNO to falsify records of expenditures in 15 connection with The Little Couple when Defendants apparently became fearful that 16 Plaintiff-Intervenors and their representatives were questioning the participation 17 statements that they were receiving and may have contemplated an audit. Mr. 18 Ikegami further testified that he ultimately refused to participate in this blatant 19 falsification of financial documents; but, the import of his testimony is clear – 20 Defendants never spent amounts claimed as part of LMNO’s “deficit.” 21 Even if LMNO’s judicial admissions that it purportedly “contributed” 22 overhead, employees and equipment to the Program were accurate (which does not 23 appear to be), this would not mean that LMNO’s contingent compensation 24 reporting to Plaintiff-Intervenors was not nonetheless blatantly fraudulent. 25 According to the Option Agreement between LMNO and Plaintiff-Intervenors, as 26 well as the later Surviving Agreement between the parties, Plaintiff-Intervenors 27 were entitled to a percentage of LMNO’s share of contingent compensation “from 28 9 EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER Case 2:16-cv-04543-JAK-SK Document 228 Filed 01/05/18 Page 12 of 19 Page ID #:5871 1 the exploitation of the Property by third parties . . . after LMNO first receives any 2 unrecouped ,direct, out-of-pocket third party customary development, production 3 and distribution costs” (emphasis added). Thus, LMNO (and Mr. Horwitz’s) 4 judicial admissions that LMNO’s “contribution” to production costs was in the 5 form of overhead, employee time and wholly-owned equipment only confirm 6 Plaintiff-Intervenors allegations of rampant fraud. LMNO acknowledges that it did 7 not expend any unrecouped monies on “out of pocket third party costs”; rather, it 8 claimed millions of dollars in expenditures in breach of the parties’ express 9 agreement. 10 11 C. Plaintiff-Intervenors Become Aware that their Intellectual Property Rights Are Placed at Risk by LMNO 12 During conversations with counsel for Discovery, Plaintiff-Intervenors were 13 advised that Discovery would seek to recover from LMNO all intellectual property 14 rights and ownership rights to Discovery programs. Johnson Decl., ¶ 3. On 15 December 21, 2017, during a telephone conversation with counsel for Discovery, 16 Plaintiff-Intervenors first learned that Discovery has had ongoing settlement 17 discussions with LMNO and that the two parties were close to a settlement. 18 McGrath Decl., ¶¶ 2-3. Counsel for Plaintiff-Intervenors wrote to Discovery on 19 December 22, 2017, stating that Plaintiff-Intervenors would oppose any settlement 20 made without their involvement which would affect Plaintiff-Intervenor’s rights 21 regarding the intellectual property rights to The Little Couple. Johnson Decl., ¶ 6 22 and Exh. 1. 23 Counsel for Discovery responded in a letter dated December 26, 2017. 24 Rather than dispelling any suspicions that the impending settlement would include 25 The Little Couple rights, Discovery essentially warned Plaintiff-Intervenors to 26 “mind your own business”: 27 28 10 EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER Case 2:16-cv-04543-JAK-SK Document 228 Filed 01/05/18 Page 13 of 19 Page ID #:5872 1 As you surely know, the lawsuit between Discovery and LMNO is 2 significantly broader than the show pertaining to your clients, and we 3 must proceed how we best see fit for Discovery. You may take 4 whatever actions you deem necessary, and we will respond as 5 appropriate. 6 Johnson Decl., ¶ 7 and Exh. 2. 7 Discovery’s refusal to discuss whether the subject intellectual property would 8 be part of the settlement confirmed Plaintiff-Intervenor’s fears. With valuable 9 intellectual property at stake, Plaintiff-Intervenors had no alternative other than to 10 seek Court intervention. It is now critically important that the Court consider this 11 Application on an ex parte basis because the impending settlement may result in a 12 transfer of ownership of the subject matter of this litigation. Plaintiff-Intervenors 13 will be irreparably prejudiced unless the Court issues a TRO preventing the transfer 14 of the foreign rights to The Little Couple television program until trial of Plaintiff- 15 Intervenors’ claim for declaratory relief. 16 III. THE COURT SHOULD ISSUE A TEMPORARY RESTRAINING 17 ORDER PREVENTING ANY TRANSFER OF THE SUBJECT 18 MATTER OF THIS LITIGATION 19 20 A. Plaintiff-Intervenors Will Suffer Irreparable Injury. “[T]he basis for injunctive relief in the federal courts has always been 21 irreparable injury and the inadequacy of legal remedies.” Weinberger v. Romero- 22 Barcelo, 456 U.S. 305, 312, 102 S.Ct. 1798, 1803 (1982); Stanley v. University of 23 Southern Calif., 13 F.3d 1313, 1320 (9th Cir. 1994). 24 If LMNO effects a settlement involving the transfer of intellectual property 25 rights and ownership rights to The Little Couple, Plaintiff-Intervenors will suffer 26 irreparable injury. Wrongful conduct that deprives plaintiff of a unique product or a 27 unique contract right, such as the intellectual property rights at issue, for which 28 11 EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER Case 2:16-cv-04543-JAK-SK Document 228 Filed 01/05/18 Page 14 of 19 Page ID #:5873 1 there is no available substitute, constitutes irreparable injury where damages would 2 be difficult to quantify at trial. Reuters Ltd. v. United Press Int'l, Inc., 903 F.2d 904, 3 908-90 (2nd Cir. 1990) (supplier of foreign news pictures threatened to stop 4 providing those pictures to wire service); Starlight Sugar, Inc. v. Soto, 114 F.3d 5 330, 332(1st Cir. 1997) (“loss of a unique or fleeting business opportunity can 6 constitute irreparable injury”). 7 If LMNO transfers the unique intellectual property rights to The Little 8 Couple, rights which are the subject of Plaintiff-Intervenors’ claims against LMNO, 9 the irreparable injury is certain to occur. A TRO is necessary under these 10 11 circumstances to protect Plaintiff-Intervenors’ rights and to preserve the status quo. B. Plaintiff-Intervenors Meet the Requirements for a Temporary 12 Restraining Order. 13 “A plaintiff seeking a preliminary injunction must establish that he is likely 14 to succeed on the merits, that he is likely to suffer irreparable harm in the absence 15 of preliminary relief, that the balance of equities tips in his favor, and that an 16 injunction is in the public interest.” Winter v. Natural Resources Defense Council, 17 Inc., 555 U.S. 7, 20, 129 S.Ct. 365, 374 (2008.) Plaintiff-Intervenors meet each of 18 these requirements. 19 1. Plaintiff-Intervenors Are Likely to Succeed on the Merits. 20 An applicant for a TRO need not show that the probability of success on the 21 merits is more likely than not. Rather, the Ninth Circuit has held that as long as the 22 other requirements are met, “[a] preliminary injunction is appropriate when a 23 plaintiff demonstrates ... that serious questions going to the merits were raised and 24 the balance of hardships tips sharply in the plaintiff's favor.” Alliance for the Wild 25 Rockies v. Cotrrell, 632 F.3d 1127. 1134-1135 (9th Cir. 2011); Leiva-Perez v. 26 Holder, 640 F.3d 962, 967 (9th Cir. 2011). Plaintiff-Intervenor’s evidence raises 27 serious questions concerning the merits of their claim. 28 12 EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER Case 2:16-cv-04543-JAK-SK Document 228 Filed 01/05/18 Page 15 of 19 Page ID #:5874 1 In a series of agreements between Plaintiff-Intervenors and LMNO, LMNO 2 agreed to pay Plaintiff-Intervenors 25% of LMNO’s share of contingent 3 compensation. In exchange, Plaintiff-Intervenors assigned their intellectual property 4 rights to LMNO and Discovery. FAC, ¶¶ 6-7. LMNO procured this assignment of 5 rights by fraud. As the allegations of the FAC and the facts summarized in section 6 II.B. demonstrate, Plaintiff-Intervenors were defrauded out of their 25% of 7 LMNO’s share of contingent compensation. Accordingly, through the seventh 8 claim for Declaratory relief, Plaintiff-Intervenors seek to rescind the contract with 9 LMNO and recover any and all intellectual property rights purportedly assigned to 10 11 LMNO. Pursuant to California Civil Code section 1688, a contract is extinguished by 12 its rescission. A party to a contract may rescind the contract “If the consent of the 13 party rescinding, or of any party jointly contracting with him, was given by 14 mistake, or obtained through duress, menace, fraud, or undue influence, exercised 15 by or with the connivance of the party as to whom he rescinds, or of any other party 16 to the contract jointly interested with such party.” Cal. Civ. Code, § 1689(b)(1). 17 Fraud in the inducement, of the kind demonstrated by Plaintiff-Intervenor’s 18 evidence, is a common ground for the rescission of contracts in California. In Miller 19 v. Busby, 101 Cal.App.2d 83, 87, 92-93 (1950), the evidence warranted the 20 rescission of the sale of a motel where the seller induced the sale with a false 21 representation as to the net income received by the motel the previous season. In 22 Gould v. Escondido Valley Poultry Ass’n, 56 Cal.App.2d 681, 686-687 (1943), the 23 purchaser of land was entitled to rescind the contract where the evidence supported 24 findings that the seller knew the falsity of the representation as to the depth of the 25 top soil. In an action to rescind, for alleged fraud by defendant, a contract of 26 association between plaintiffs and defendant to collaborate in joint adventure to 27 produce and market stories for radio broadcasting, the evidence supported a finding 28 13 EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER Case 2:16-cv-04543-JAK-SK Document 228 Filed 01/05/18 Page 16 of 19 Page ID #:5875 1 that manuscripts prepared by defendant and furnished to plaintiffs were valueless. 2 Dunn v. Stringer, 41 Cal.App.2d 638, 642-643 (1940). 3 The common theme in all of these authorities, and in this litigation, is that 4 procuring assent to contract by means of fraud may result in rescission of the 5 contract. The evidence submitted by Plaintiff-Intervenors, in light of these 6 authorities, demonstrates a likelihood of success on the merits, and raises the 7 “serious questions” required by Ninth Circuit jurisprudence. 8 9 10 2. Plaintiff-Intervenors Are Likely to Suffer Irreparable Harm in the Absence of a TRO. The evidence presented by Plaintiff-Intervenors is that there is a real and 11 immediate threat that LMNO will transfer the intellectual property rights within its 12 possession to Discovery to settle Discovery’s claims. Those rights are the subject of 13 Plaintiff-Intervenors’ rescission claim against LMNO. Plaintiff-Intervenors are not 14 required to prove the threat of harm to a certainty. While a likelihood of harm is 15 required, “the alleged harm need not be occurring or be certain to occur” before a 16 court can grant a preliminary injunction. Michigan v. United States Army Corps of 17 Engineers, 667 F3d 765, 788 (7th Cir. 2011). 18 Irreparable injury is likely in the absence of injunctive relief. First, the harm 19 to Plaintiff-Intervenors is imminent. LMNO and Discovery appear to be close to a 20 settlement of the claims between each other – and such a settlement will occur long 21 before Plaintiff-Intervenors are able to have a trial on the merits, currently set for 22 June 19, 2018. 23 Second, the irreparable injury cannot be redressed by a legal or equitable 24 remedy following trial. By the time of trial, if the anticipated settlement is 25 successful, Discovery will have flown the coop with the intellectual property rights 26 sought by Plaintiff-Intervenors. With a dismissal by LMNO, Discovery will no 27 longer be a party to this litigation. LMNO will then face trial by Plaintiff- 28 14 EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER Case 2:16-cv-04543-JAK-SK Document 228 Filed 01/05/18 Page 17 of 19 Page ID #:5876 1 Intervenors, but will be left holding an empty bag, with nothing left for Plaintiff- 2 Intervenors to recover. 3 The legal remedy of damages is inadequate. Again, the subject matter of 4 Plaintiff-Intervenors’ declaratory relief claim is the unique intellectual property 5 rights and ownership rights to a television program. Loss of these rights simply 6 cannot be adequately compensated by money damages. When a plaintiff suffers 7 “substantial injury that is not accurately measurable or adequately compensable by 8 money damages, irreparable harm is a natural sequel.” Ross-Simons of Warwick, 9 Inc. v. Baccarat, Inc. (1st Cir. 1996) 102 F3d 12, 18; WPIX, Inc. v. ivi, Inc. (2nd 10 Cir. 2012) 691 F3d 275, 285 (“Harm may be irreparable where the loss is difficult 11 to replace or measure, or where plaintiffs should not be expected to suffer the 12 loss”.) 13 In the absence of a TRO, Plaintiff-Intervenors are likely to suffer the 14 irreparable harm of the loss of unique contractual rights, the intellectual property 15 rights to the television program The Little Couple. See, e.g., Reuters Ltd. v. United 16 Press Int'l, Inc., 903 F.2d 904, 908-90 (supplier of foreign news pictures threatened 17 to stop providing those pictures to wire service); Starlight Sugar, Inc. v. Soto, 114 18 F.3d 330, 332 (“loss of a unique or fleeting business opportunity can constitute 19 irreparable injury”). Such irreparable harm is analogous to the loss of a unique 20 parcel of real property, a circumstance where money damages are inadequate. See 21 Park Village Apt. Tenants Ass'n v. Mortimer Howard Trust, 636 F.3d 1150, 1159 22 (9th Cir. 2011) (potential eviction of low-income plaintiff from apartment); 23 Sundance Land Corp. v. Community First Fed'l Sav. & Loan Ass’n, 840 F.2d 653, 24 661 (9th Cir. 1988) (loss of property through foreclosure). 25 Finally, LMNO’s business has been damaged by this litigation, and it is 26 questionable whether it will be able to pay money damages at the end of the day. 27 (See LMNO’s SAC, ¶ 62.) This factor further militates in favor or injunctive relief. 28 15 EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER Case 2:16-cv-04543-JAK-SK Document 228 Filed 01/05/18 Page 18 of 19 Page ID #:5877 1 Lakeview Technology, Inc. v. Robinson, 446 F.3d 655, 657 (7th Cir. 2006) (“A 2 judgment-proof defendant is not deterred by the threat of money damages, so some 3 other remedy (such as the contempt power) may be essential”); WPIX, Inc. v. ivi, 4 Inc., 691 F.3d 275, 286 (2nd Cir. 2012) (the likelihood defendant would be unable 5 to satisfy any substantial damage award supported injunctive relief); Robert Bosch 6 LLC v. Pylon Mfg. Corp., 659 F.3d 1142, 1155 (Fed. Cir. 2011) (the court should 7 assess whether the damage remedy is meaningful in light of defendant’s financial 8 condition before damages can be deemed adequate.) 9 10 3. The Balance of Equities Tips in Plaintiff-Intervenors’ Favor. Here, the balance of equities tips in the favor of Plaintiff-Intervenors, who 11 are innocent victims of LMNO’s conduct. In balancing equities, the injury a 12 defendant might suffer if an injunction were imposed should be discounted if 13 defendant brought the injury upon itself by the conduct sought to be enjoined. See 14 Novartis Consumer Health, Inc. v. Johnson & Johnson-Merck Consumer 15 Pharmaceuticals Co., 290 F.3d 578, 596 (3rd Cir. 2002) (any loss of investment 16 and goodwill in defendant's product name resulted from its use of allegedly 17 misleading name.) 18 Further, the harm faced by LMNO by the requested TRO is temporary. The 19 TRO will only preserve the status quo until the time of trial at the latest. However, 20 the irreparable harm faced by Plaintiff-Intervenors would be permanent. The 21 balance of hardships will generally tip in plaintiff's favor if the harm plaintiff faces 22 without an injunction is permanent while the harm defendant faces if an injunction 23 is granted is temporary. League of Wilderness Defenders/Blue Mountains 24 Biodiversity Project v. Connaughton, 752 F.3d 755, 765 (9th Cir. 2014). 25 4. An Injunction Will Not Affect the Public Interest. 26 The public interest factor is neutral and does not favor denying the requested 27 TRO. As here, where the TRO’s reach is narrow, only affects a private dispute 28 16 EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER Case 2:16-cv-04543-JAK-SK Document 228 Filed 01/05/18 Page 19 of 19 Page ID #:5878 1 between the parties, and does not affect nonparties, “at most a neutral factor in the 2 analysis rather than one that favor[s] [granting or] denying the preliminary 3 injunction.” Stormans, Inc. v. Selecky, 586 F.3d 1109, 1139 (9th Cir. 2009). 4 IV. CONCLUSION 5 For the foregoing reasons, Plaintiff-Intervenors respectfully request that the 6 Court issue a temporary restraining order prohibiting LMNO from any transfer of 7 intellectual property rights or ownership rights to the television program The Little 8 Couple prior to the trial of this matter. 9 10 11 12 13 14 DATED: January 5, 2018 JOHNSON & JOHNSON LLP By /s/ Neville L. Johnson Neville L. Johnson Attorneys for Plaintiff-Intervenors William Klein, Jennifer Arnold, and Candu Enterprises, Inc. 15 16 17 18 19 20 21 22 23 24 25 26 27 28 17 EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER