PAYBACK

In 1952, singer Peggy Lee entered an agreement with Disney to work on the animated film Lady and the Tramp. Peggy Lee wrote six songs, sang three, and was the voice for four characters in the 1955 film. Lee was paid $3,500 for her participation. Disney retained all rights to revenues earned from distributing the movie to theatres and television broadcasting companies in domestic and foreign markets. Lee retained the right to residual payments at 12.5% for such items as phonographic recordings sold to the public. Specifically, the contract gave Disney the right to distribute the film including the rights to "any other technology yet to be invented," but 12(b) of the agreement provided that Anything herein to the contrary notwithstanding, it is agreed that nothing in this agreement contained shall be construed as granting to us (Disney) the right to make phonograph recordings and/or transcriptions for sale to the public, wherein results or proceeds of your services hereunder are used. In 1987 Disney began distributing videocassettes of the film. Lee sued in March 1988, claiming she was entitled to $9 million. Specifically, she claimed that she was entitled to 12.5% of the profits Disney generated from the sales of videocassettes of Lady and the Tramp on the basis that the distribution of the videocassettes was not authorized by the 1952 contract. Disney countered that the distribution of the videocassettes was authorized in the contract and that Lee was therefore entitled only to residual payments for her songs and voice performances, which would be capped (under union rules) at $381,000. Disney introduced evidence that it was their "custom, practice and usage" not to allow profit participation deals for voice performers in animated movies, a policy which "evolved," according to the testimony of Roy Disney, "from the notion of absolute ownership, no strings attached...It stems from bad experiences Dad and Walt had in the '20s." Further, there was testimony from Jodi Benson, the voice of Ariel in The Little Mermaid (released in 1989), and Cheech Marin, a voice in Oliver & Co. (released in 1988), who each testified that Disney did not give voice actors profit participation deals. 1 Required Assume that your consulting team has been hired by Art and History Magazine to provide an unbiased report on the merits of this litigation and the damage claims made by Ms. Lee.

The magazine's editors intend to use your report to write an informative article that will appear in an issue of their journal. In preparing your answer, be sure to review financial accounting concepts 2 and 7, management accounting concepts 7 and 8, and business law concepts 1 and 2.

PAYBACK - QUESTIONS

In your report to Art and History Magazine, your team has been asked to address the following questions from both vantage points:Disney and Ms. Lee.

Q. 1. Was Lee entitled to a percentage of the videocassette sales or can Disney deny the payment under the contract's provisions? Separately, discuss the two grounds of Lee's suit:

a. Breach of contract: Specifically identify contractual language that supports each party's argument. Discuss both sides of the issue of whether the distribution of the videocassette was authorized by the 1952 contract. Reach a conclusion based on your analysis.

b. Invasion of privacy: Specifically identify the form of invasion of privacy Lee is alleging along with any defense(s) Disney has. Debate both sides of the issue of whether Disney invaded Lee's privacy. Reach a conclusion based on your analysis.

Q. 2. Explain the relevance of Disney's custom, practice, and usage of declining to give voice performers participation deals. How does the testimony affect the interpretation of the parties' intent on entering the contract?

Q. 3. If Disney prevails in this lawsuit, how much is Lee entitled to?

Q. 4. How did Lee calculate her claim of $9,000,000?

Q. 5. Explain the difference between sales revenue, gross profit, contribution to overhead, and profit before tax.

Q. 6. Assume that Lee prevails in the lawsuit; calculate the amount of Lee's damages based on 12.5% of profits. Support your calculation with an explanation of your logic.

Q. 7. Assuming that Lee prevails, the court will allow her prejudgment interest at the rate of 8% from the date of demand (assume that this is from February 28, 1988) until the judgment date (assume that this is March 1, 1991.) Using your calculations in question 6, calculate the interest that Lee will receive on her judgment and the total amount, interest plus damages, that Lee is likely to be awarded.