## Facts

- Paul Haggis, Inc. (Paul Haggis’s loan-out company), Bobby Moresco, Mark Harris, and Brendan Fraser worked on the film *Crash* as writer/director, writer/producer, producer, and actor (collectively, Haggis).
- The group entered a services and compensation contract with Persik Productions, Inc. and related Persik entities (collectively, Persik), the film’s principal financier.
- The contract paid a flat fee plus contingent compensation tied to the film’s “adjusted gross receipts,” after specified deductions; the contract referred to the contingent compensation as “third-party participations.”
- After the contract was signed, Persik sold its rights in the film to ApolloProScreen (Apollo). Apollo then licensed certain rights back to Persik.
- Under the parties’ payment structure, gross receipts were processed through collection and management accounts set up by a Persik subsidiary. Each quarterly period, the accounts deducted expenses, paid third-party participations, and then the remaining sums were split between Apollo and Persik.
- *Crash* became a commercial success and won the Academy Award for Best Picture. For nearly two years, Persik and Apollo oversaw quarterly accountings and distributions to Haggis.
- Haggis retained a certified public accountant to audit Persik’s accounting. The audit concluded Haggis had been underpaid due to Persik’s accounting practices.
- Persik’s chief financial officer responded by claiming a “mistake” had been found showing Haggis was actually overpaid, asserting Apollo should have been treated as a “third-party participant” whose fee would reduce what was payable to Haggis.
- Haggis sued for breach of contract and sought equitable relief, including a constructive trust over funds alleged to be owed. Haggis alleged Persik used multiple accounting methods to reduce the contingent compensation.
- After a bench trial, the trial court found Persik breached the contract and rejected Persik’s claim that Apollo qualified as a third-party participant. The trial court also found the CFO’s claimed “mistake” was not genuine.
- Persik later argued that, because receipts were split with Apollo, Persik owed participations only on the portion Persik retained (not on total gross receipts). The trial court rejected that position as inconsistent with the contract.
- The trial court imposed a constructive trust and awarded over $9.1 million in damages plus over $2.5 million in prejudgment interest. Persik appealed.

## Issues

1. Did the contract allow Persik to treat Apollo (a post-contract purchaser/licensor) as a “third-party participant” that would reduce the participations payable to Haggis?
2. Could Persik limit “adjusted gross receipts” for participation purposes to the portion of receipts Persik retained after splitting revenues with Apollo?
3. Was there substantial evidence supporting the trial court’s findings that Persik’s accounting breached the contract and caused underpayment?
4. Did the trial court properly impose a constructive trust over funds owed to Haggis under the contract?
5. Was prejudgment interest properly awarded on damages that were certain or capable of being made certain by calculation?

## Decision

- The California Court of Appeal affirmed the judgment.
- The court upheld the trial court’s rejection of Persik’s argument that Apollo was a “third-party participant” under the contract.
- The court upheld the trial court’s rejection of Persik’s later argument that participations were owed only on Persik’s retained share of receipts after the Apollo split, rather than on contractually defined gross receipts.
- Applying deferential review to factual findings after a bench trial, the court concluded Persik did not show prejudicial error in the trial court’s breach and damages findings.
- The court affirmed the constructive trust remedy based on the trial court’s determination that Persik wrongfully retained money owed to Haggis.
- The court affirmed the prejudgment interest award.

## Legal Principles

- Courts interpret a contract to effect the parties’ intent as expressed in the contract’s language, and may consider how the parties performed under the agreement to confirm meaning.
- A party generally may not use later transactions with third parties to rewrite defined revenue terms or reduce promised contingent compensation, absent contract language permitting that result.
- On appeal from a bench trial, the reviewing court views the evidence in the light most favorable to the judgment; factual findings supported by substantial evidence are not reweighed, and the appellant must show prejudicial error.
- A constructive trust may be imposed when a defendant holds identifiable funds that, in equity and good conscience, belong to the plaintiff.
- Prejudgment interest may be awarded when damages are certain or capable of being made certain by calculation from the time payment was due.

## Conclusion

The Court of Appeal affirmed a bench-trial judgment arising from *Crash* profit participations, holding that Persik could not reduce contract-based contingent compensation by treating Apollo as a “third-party participant” or by paying participations only on Persik’s post-split receipts, and it upheld the trial court’s breach findings, constructive trust, damages, and prejudgment interest award.


Paul Haggis, Inc. v. Persik Productions, Inc., 2014 WL 346464 (2014)