Judge’s Order Covers Spectrum of Contract Issues

October 28, 2008


Neil J. Rosini, Michael I. Rudell

In an action brought by NBC Universal, Inc. and Bravo Media, LLC against the Weinstein Company, LLC in Supreme Court, New York County, a preliminary injunction issued recently that prevented TWC from taking “Project Runway” from Bravo to Lifetime

(Originally published in the Entertainment Law column of the New York Law Journal, October 24, 2008)

In an action brought by NBC Universal, Inc. (“NBCU”) and Bravo Media, LLC against the Weinstein Company, LLC 1 (“TWC”) in Supreme Court, New York County, a preliminary injunction issued recently that prevented TWC from taking its highly successful cable reality series “Project Runway” from NBCU’s Bravo network to Lifetime. In granting the plaintiffs’ motion for injunctive relief and denying TWC’s cross-motion to dismiss the complaint, the Court addressed questions that include the enforceability of an unexecuted license agreement; enforceability of a clause that requires all amendments to be in writing and signed by the parties; interpretation and enforceability of first refusal rights and holdback periods; applicability of the Copyright Act provision that requires exclusive transfers of rights to be made in a signed writing; and the availability of injunctive relief when the party obligated to observe those first refusal and holdback rights chooses to ignore them.

Factual Background

“Project Runway” is a weekly cable television reality series in which fashion designers attempt to survive successive rounds of critiques by a panel of judges as they compete with one another for prizes. In 2003, Harvey Weinstein, then co-chairman of Miramax Pictures, pitched the series to Jeff Zucker, the CEO of NBCU. A draft license agreement ensued that gave Bravo exclusive exhibition rights in the United States in exchange for license fees, but the document was never signed (the “2003 Unsigned Agreement”). Production of the series nonetheless proceeded and five “cycles” of programs appeared on Bravo since the series premiere in 2004, with the fifth cycle starting this past July and ending last week. The series attracted an enormous following and became a critical success too, garnering three Emmy Award nominations and a Peabody Award. Its commercial clout was commensurate: the Court’s decision referred to the series as a “game changer,” meaning that it had the power to drive ratings potentially for an entire network.

The 2003 Unsigned Agreement also accorded NBCU a “right of first negotiation and first refusal” that embraced any spin-off of “Project Runway.” In January 2007, after both Weinstein and production of “Project Runway” had moved from Miramax to TWC, NBCU and TWC agreed at a meeting to several modifications to the parties’ arrangement, including a further “first refusal right” for NBCU in the series itself exercisable after completion of cycle 5. Further, NBCU agreed to accelerate the exercise of options for cycles four and five and to exhibit those programs on a faster timetable. These changes were reflected in an exchange of emails.

In the first email (the “NBCU Email”), an NBCU executive summarized the modifications. An internal email at TWC then acknowledged the “outline of agreed points” in the NBCU Email and cleared the way for “TWC’s official response” to be sent. That answer took the form of an email from the agent for TWC (the “TWC Email”) who tersely wrote in reference to Weinstein: “Harvey intends to live by the terms of the letter you sent…”

The unsigned 2003 Unsigned Agreement also accorded NBCU a holdback right for one year after Bravo finished airing its new episodes. During that holdback period, TWC was barred from marketing, promoting and exhibiting episodes of the series and from permitting others to do so. The NBCU Email, acknowledged by the TWC Email, shortened that holdback period from 12 months to six months; and then in July 2007, a written agreement signed by the parties shortened the holdback period to a single day following Bravo’s airing of the “finale episode” of the fifth cycle. In return, Bravo was permitted to exhibit cycle five at a later date than the one previously agreed upon.

On February 22, 2008, Zucker wrote in an internal email that he received a call that night from Weinstein who said that TWC received an offer for “Project Runway,” which in Weinstein’s words was so “huge and stupid” it was “not worth countering” by NBCU. Nevertheless, according to Zucker’s writing, Weinstein committed to show the offer to Zucker “when it was completed” in compliance with NBCU’s first refusal right. Actually, TWC had signed a deal with Bravo’s competitor, Lifetime, several weeks earlier on February 7. Further, Weinstein had received from Lifetime and cashed an advance check for $20 million.

Thus the opportunity to counter the third party’s offer never materialized for NBCU. Instead, on April 7, 2008, it learned for the first time that “Project Runway” was going elsewhere when TWC and Lifetime publicly announced their plans to premiere the series on Lifetime immediately following Bravo’s completion of cycle five. And they further announced that Lifetime planned to schedule a spin-off of “Project Runway” also licensed from TWC called “Models of the Runway.”

NBCU and Bravo filed the instant action that same day, alleging breach of contract and seeking both declaratory relief and specific performance. They further moved for a preliminary injunction to prevent TWC from performing any agreement with Lifetime regarding “Project Runway” or a spin-off; and enjoining any promotion or marketing of a move to Lifetime.

Enforcement of the Agreement

In considering the plaintiffs’ motion, the Court addressed TWC’s argument that the 2003 Unsigned Agreement was unenforceable because neither party signed it and TWC, for one, never intended to be bound by it. On this basis, TWC asserted that it never was obligated to give NBCU a right of first refusal regarding the “Project Runway” spin-off.

The Court began with the wry observation that “the television industry is one which seems to have a disregard for legal formality and is indeed reckless by failing to execute long-form license agreements for the sake of the exigencies of time in getting television shows produced and broadcasted.” Supporting this conclusion, witnesses for both sides testified that parties to television industry deals customarily regard unsigned agreements as binding and enforceable. The author of the TWC Email further acknowledged that the terms of agreements could be set forth in a series of writings, including term sheets and follow-up emails, collectively constituting the understanding between the parties. For these reasons, the Court found that the plaintiffs acted reasonably in reliance on the 2003 Unsigned Agreement.

In accord with New York precedent, this reliance had the effect of creating an enforceable contract provided that TWC’s conduct “evinced an intent to be bound by the agreement.” The Court found evidence of this intent in several places, notwithstanding TWC’s denial. For one thing, TWC had taken the position in 2006 that NBCU was in violation of the 2003 Unsigned Agreement with regard to two “related” ventures, on which the decision did not elaborate. Further, the parties performed under the 2003 Unsigned Agreement; TWC undisputedly produced and Bravo paid for multiple cycles of the series “pursuant to the provisions of the unexecuted long form, as well as subsequent amendments.”

TWC further argued that even if the 2003 Unsigned Agreement as amended evinced an agreement, it was made unenforceable by the New York statute of frauds. The Court rejected that defense because TWC had “confirmed and reconfirmed the agreement in numerous signed and unsigned writings” that referred back to the 2003 Unsigned Agreement and could be pieced together to show the parties intended to be bound. These included the signed July, 2007 letter agreement that adjusted the holdback period; two indemnity agreements from March 2006 and November 2004; and the exchange of emails between representatives of NBCU and TWC in 2007. Further, Weinstein confirmed at his deposition that an agreement was reached at the meeting that preceded the 2007 exchange of emails, and both parties acknowledged that the industry makes agreements through email correspondence.

TWC also argued that the 2003 Unsigned Agreement contained a provision requiring all amendments to be in writing signed by both parties, which would exclude the exchange of emails referring to NBCU’s right of refusal for the “Project Runway” series. The Court noted that despite the clause, an oral or unsigned modification will be enforceable if the party seeking enforcement clearly can demonstrate partial performance of the modification. By speeding up the production and telecast of cycles four and five in reliance on the modification, plaintiffs demonstrated the required partial performance, according to the decision.

Finally, the defendants argued that section 204(a) of the U.S. Copyright Act barred enforcement of both rights of first refusal by making a transfer of copyright ownership invalid in the absence of a written “instrument of conveyance or a note or memorandum of the transfer” that is “signed by the owner of the rights conveyed or such owner’s duly authorized agent.” The Court rejected this argument because a right of first refusal is a grant under contract and not a transfer of a copyright right that would implicate section 204(a).

The 2003 Unsigned Agreement, according to the decision, provided a “right of first negotiation and first refusal to any spin-off of the show.” The 2007 NBCU Email letter referred to “a first refusal right to acquire the series.” The defendants argued that the terms of both rights of first refusal were too indefinite to be enforced. Again, the Court disagreed noting that the right of first refusal has a “well-known and recognized meaning as a preemptive right” citing Jeremy’s Alehouse Also, Inc. v. Joselyn Luchnick Irrevocable Trust, 22 A.D. 3d 6, 10 (1st Dep’t 2005) (a landlord-tenant case involving a “last right of refusal”). The Court found a sufficiently pleaded right of first refusal in the plaintiffs’ references to the “Project Runway” project; the consideration given for the “Project Runway” right of first refusal (that is, shortening the holdback and condensing the broadcast schedule for cycles four and five); the “trigger” for the right (that is, TWC selling or licensing the series to another network); and the term of the right (for as long as TWC marketed “Project Runway”). Further, the plaintiffs’ allegations respecting the right of first refusal survived the statute of frauds on the same basis as the 2003 Unsigned Agreement itself.

Test for Injunctive Relief

If a contractual right of first refusal is ignored, should disposition of the rights in question be enjoined? The answer focused likelihood of success on the merits (that is, on establishment of an agreement, breach, performance by the plaintiffs, and resulting damages), irreparable harm, and a balance of equities tipping in favor of the plaintiffs.

The Court called irreparable harm the “single most important prerequisite” which not only must be imminent but also a likely occurrence should relief be denied. In finding that the plaintiffs had satisfied those criteria, the Court cited proof that “Project Runway” was a “flagship show” capable of raising a network’s value across the entirety of a seven-day programming schedule. This “halo effect” made calculation of the plaintiffs’ losses difficult because they extended beyond a single show. Rather, the loss could affect the profitability of an entire network.

The Court noted that the defendants not only failed to rebut the plaintiffs’ position on this score, but also their evidence tended to support it: they had argued that a move to Lifetime would be a “game changer” for that network and transform it. So would it be for the plaintiffs. And further, because the NBCU held a right of first refusal to broadcast “Project Runway” on the NBC television broadcast network itself, it was impossible to determine the number of viewers who might watch a major network telecast of the series. The Court also noted the great potential of “Project Runway” for “product integration” — a “critical area” for broadcasters and a “unique marketing opportunity.” As the Court concluded, “in this unique situation, irreparable harm is found.”

In its balance of the equities, the Court showed little sympathy for the defendants’ argument that they would lose the substantial money that was spent to advertise the advent of the program on Lifetime. The Court cited the allegations that the defendants were dishonest with the plaintiffs, particularly when Weinstein allowed them to believe for more than two months that he was still negotiating with them when in fact he had already closed a deal with Lifetime and cashed the check. In light of the fact that the plaintiffs commenced their action immediately upon learning of the Lifetime deal, the Court concluded that “any consequence with respect to the timing of the proposed preliminary injunction is the result of Weinstein’s conduct as, had he disclosed the agreement immediately as promised, the plaintiffs could have brought suit almost two months earlier.”

The Court required the plaintiffs to post a $20 million bond and put the case on an expedited schedule so that the series would not be off the air “for an excessive period of time.”

Right of First Refusal

The Court’s decision indicates that the “right of first refusal” – interpreted by the Court to be a matching right — was referenced by the parties in their contract and emails, with neither a definition nor procedural details other than a triggering event and a term. Practitioners have questioned whether a mere statement that a party grants a right of first refusal includes enough information to be enforceable. The term itself is ambiguous as it overlaps in concept with “first negotiation,” “matching right,” “last refusal” and “right of preemption.”

Numerous details can be included in a first refusal clause, which often is heavily negotiated. Variables may include which party must transmit the offer to be matched; whether non-financial elements in an offer must be matched (for example, that a program will be broadcast in a particular time period; or that certain performers or production personnel must be attached); and whether the right pertains to every offer received in perpetuity.

It would be of great interest to learn the terms of the Lifetime offer and whether NBCU is willing or able to match them.


1 NBC Universal, Inc. and Bravo Media LLC v. The Weinstein Company, LLC, Supreme Court, New York County, Index No. 601011/08, Hon. Richard B. Lowe, III