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U.S.C.A. Docket No. 09-56584


UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT
HANNIBAL PICTURES , INC. a California corporation, Plaintiff and Appellee, vs. SONJA PRODUCTIONS, LLC, a Delaware limited liability company, and SONJA TREMONT-MORGAN, an individual, Defendants and Appellants. ______________________________ On Appeal from The United States District Court for the Central District of California, Los Angeles Division Case No. 2:06-cv-01814-WDK The Honorable William D. Keller ______________________________ APPELLEES BRIEF ______________________________

HAMRICK & EVANS, LLP A. Raymond Hamrick, Bar. No. 119438 10 Universal City Plaza, Suite 2200 Universal City, California 91608 Telephone: (818) 763-5292

ESNER, CHANG & BOYER Stuart B. Esner, Bar No. 105666 Andrew N. Chang, Bar No. 84544 Holly N. Boyer, Bar No. 221788 234 East Colorado Blvd., Suite 750 Pasadena, California 91101 Telephone: (626) 535-9860

Attorneys for Plaintiff and Appellee Hannibal Pictures, Inc.

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CORPORATE DISCLOSURE STATEMENT

Hannibal Pictures, Inc. is a California corporation with no parent or subsidiary, and no publicly held company owns 10% or more of Hannibal Pictures, Inc. stock.

Dated: October 29, 2010

By: s/

Stuart B. Esner Stuart B. Esner Esner, Chang & Boyer 234 E. Colorado Boulevard, Suite 750 Pasadena, CA 91101 (626) 535-9860 Attorneys for Plaintiff and Appellee Hannibal Pictures, Inc.

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TABLE OF CONTENTS

JURISDICTIONAL STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 STATEMENT OF THE ISSUES PRESENTED FOR REVIEW . . . . . . . . . . . 1 STATEMENT OF THE PERTINENT STATUTES . . . . . . . . . . . . . . . . . . . . . 2 STATEMENT OF THE CASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 STATEMENT OF FACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 A. The Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 1. Plaintiff Hannibal Pictures - a successful, established producer of films distributed worldwide and starring Oscar-winning actors. . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Defendant Sonja Morgan represents that she, her husband, and her company has $25-50 million to produce up to five films. .................. 5

2.

B.

Ms. Morgan Fraudulently Misrepresents Her Cash Funds On Hand To The Independent Film Market, Lures Hannibal With Her Misrepresentations Of Millions In Cash, And Induces Hannibal To Agree To Allow Morgan To Fund The Production Of Fast Flash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 The Terms Of The Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Hannibal Satisfies Its Primary Obligation To Secure John Travoltas Written Confirmation To Star In The Film. . . . . . . 9 Morgan Breaches The Contract And Fails To Provide The Required Proof Of Funds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

C. D.

E.

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F.

The Collapse Of The Film Production Causes Hannibal Significant Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

APPELLEES REBUTTAL TO DEFENDANTS STATEMENT OF CASE AND STATEMENT OF FACTS . . . . . . . . . . . . . . . . . . . . . . 17 SUMMARY OF THE ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 I. DEFENDANTS FAILURE TO COMPLY WITH FEDERAL RULE OF CIVIL PROCEDURE 50(a), FORFEITS THEIR REQUEST THAT THIS COURT REVERSE THE DISTRICT COURTS DENIAL OF THE RENEWED MOTIONS FOR JUDGMENT AS A MATTER OF LAW . . . . . . . . . . . . . . . . . . . . . 24 EVEN IF THE ISSUE HAD NOT BEEN WAIVED BY DEFENDANTS, THE ECONOMIC LOSS RULE DOES NOT EXTEND TO BAR HANNIBALS FRAUD BASED CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 A. B. The Evolution Of The Economic Loss Rule. . . . . . . . . . . . . . 29 The District Court Properly Rejected Defendants Contention That The Economic Loss Rule Applied To Bar Hannibal From Recovering In Tort. . . . . . . . . . . . . . . . . . . . . 34 (i.) As Aptly Concluded By The District Court, Defendants Fraudulent Conduct Was Extraneous To The Contract And Thus Not Barred By The Economic Loss Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Contrary To Defendants Position, The Economic Loss Rule Does Not Bar Tort Recovery In Every Case Where Only Economic Damage Occur. . . . . . . . 41

II.

(ii.)

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III.

IN ANY EVENT, SONJA MORGAN WAS NOT A PARTY TO THE CONTRACT, AND THUS CANNOT RELY UPON THE ECONOMIC LOSS RULE AS A SHIELD FROM TORT LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 AS CONCLUDED BY THE DISTRICT COURT, SUBSTANTIAL EVIDENCE SUPPORTS THE DAMAGES AWARD AND THUS NEITHER A REMITTITUR NOR A NEW TRIAL IS WARRANTED . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 A. Defendants Misrepresent The Applicable Standard Of Review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Hannibal Proved With Reasonable Certainty That The Film Would Have Been Completed And Generated Net Profits Shown By Expert Testimony. . . . . . . . . . . . . . . . . . . . . . . . . . 53

IV.

B.

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 STATEMENT OF NO RELATED CASES . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 CERTIFICATE OF COMPLIANCE WITH RULE 32(a) . . . . . . . . . . . . . . . 61

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TABLE OF AUTHORITIES

CASES Aas v. Superior Court, 24 Cal.4th 627 (2000) . . . . . . . . . . . . . . . . . . . . . . . . 29, 44 Advisors Capital Investments Inc., v. Cumberland Cas. & Sur. Co., No. 8:05-CV-404-T-23MAP, 2007 U.S. Dist. LEXIS 5865, 2007 WL 220189 (M.D. Fla. Jan. 26, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co., 47 Cal.App.4th 464 (1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Astrium, S.A.S. v. TRW, Inc. 254 F.Supp.2d 1129 (C.D. Cal. 2003) . . . . . . . . . . 45 Calloway v. City of Reno, 116 Nev. 250, 993 P.2d 1259 (Nev. 2000) . . . . . . . . . 32 Carroll v. Nakatani, 342 F.3d 934 (9th Cir.2003) . . . . . . . . . . . . . . . . . . . . . . . . 50 City Solutions, Inc. v. Clear Channel Communications, Inc., 365 F3d 835 (9th Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 County of Santa Clara v. Atlantic Richfield Co.,137 Cal.App.4th 292 (2006) . . 33 Desrosiers v. Flight Int'l of Florida Inc., 156 F.3d 952 (9th Cir. 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24, 53 Erlich v. Menezes, 21 Cal.4th 543 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37, 44 Frances T. v. Village Green Owners Assn., 42 Cal. 3d 490 (1986) . . . . . . . . 47, 49 Frank E. Maddocks, Inc. v. University Medical Products/USA, Inc. 2005 Cal.App. Unpub. Lexis 7546 (Cal.App. 2 Dist., Aug. 22, 2005) . . . . . . . . 44 Freund v. Nycomed Amersham, 347 F.3d 752 (9th Cir.2003) . . . . . . . . . . . . . . . 26

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Giles v. General Motors Acceptance Corp., 494 F.3d 865 (9th Cir. 2007) . . 31-33 Grupe v. Glick, 26 Ca1.2d 680 (1945) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 H.B. Filmes, LTDA v. CBS, Inc., 2004 U.S. App. Lexis 8567, 98 Fed. Appx. 596 (9th Cir. 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45, 46 Hangarter v. Provident Life & Acc. Ins. Co., 373 F3d 998 (9th Cir. 2004) . . . . . 53 Humetrix, Inc. v. Gemplus, S.C.A. , 268 F.3d 910 (9th Cir. 2001) . . . . . . . . . . . . 58 Jimenez v. Superior Court 29, Cal.App.4th 473 (2002) . . . . . . . . . . . . . . . . . 43, 44 Kids Universe v. In2Labs, 95 Cal.App.4th 870 (2002) . . . . . . . . . . . . . . . . . 53, 55 Kona Enters., Inc. v. Estate of Bishop, 229 F.3d 877 (9th Cir. 2000) . . . . . . . . . 50 Krzyzanowsky v. Orkin Exterminating Co., Ins., No. C 07-05362 SBA, 2009 U.S. Dist. LEXIS 14332 (N.D. Cal. Feb. 24, 2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Las Palmas Assocs. v. Las Palmas Center Assocs., 235 Cal.App.3d 1220 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37, 38, 43 Lazar v. Superior Court, 12 Cal.4th 631 (1996) . . . . . . . . . . . . . . . . . 37, 38, 40, 43 Lincoln Gen. Ins. Co. v. Access Claims Admin., Inc., 2007 U.S. Dist. LEXIS 67172, 2007 WL 2492436 (E.D. Cal. Aug. 29, 2007) . . . . . . . . . . . . . . . . . . . . . 40 Luiginos Intl, Inc. v. Miller, 2009 U.S. App.Lexis 2614, 311 Fed. Appx. 289 (11th Cir. Ga. 2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Maggio, Inc. v. UFW, 227 Cal.App.3d 847 (1991) . . . . . . . . . . . . . . . . . . . . . 56, 57 McEuin v. Crown Equip. Corp., 328 F.3d 1028 (9th Cir. 2003) . . . . . . . . . . . . . 52 McLeod v. Barber, 764 So. 2d 790 (Fla. App. 2000) . . . . . . . . . . . . . . . . . . . . . . 48

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Michaelis v. Benavides, 61 Cal.App.4th 681 (1998) . . . . . . . . . . . . . . . . . . . . . . 49 Mirzai v. Matossian, 2004 Cal.App. Unpub. LEXIS 9107 (Cal.App.1st Dist. Oct. 8, 2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43, 44 N/S Corp. v. Liberty Mut. Ins. Co., 127 F.3d 1145 (9th Cir. 1997) . . . . . . . . . . . 17 Natural Soda Prod. Co. v. City of Los Angeles, 23 Ca1.2d 193 (1943) . . . . . . . . 56 Nitco Holding Corp. v. Boujikian, 491 F.3d 1086 (9th Cir. 2007) . . . . . . . . . 26, 27 Parlour Enterprises, Inc. v. The Kirin Group, Inc., 152 Cal.App.4th 281 (2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53, 55 Reynolds v. Bement 36 Cal.4th 1075 (2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal.4th 979 (2004) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-31, 37, 40, 41-43 S.M. Wilson & Co. v. Smith Internat., Inc. 587 F.2d 1363 (1978) . . . . . . . . . . . 44 Sacramento Regional Transit Dist. v. Grumman Flxible 158 Cal.App.3d 289 (1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Simpkins v. S. Wine & Spirits of Am., Inc., 2010 U.S. Dist. LEXIS 91971 (N.D. Cal. Aug. 9, 2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 StreamCast Networks, Inc. v. IBIS LLC, No. CV 05-04239, 2006 WL 5720345 (C.D. Cal. May 2, 2006) . . . . . . . . . . . . . 37 W. Emulsions, Inc. v. BASF Corp., No. 05-CV-5246 CBM(SSx), 2007 U.S. Dist. LEXIS 4837663 (C.D. Cal. Jan. 17, 2007) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Walker v. Signal Cos., Inc., 84 Cal.App.3d 982 (1978) . . . . . . . . . . . . . . . . . . . . 37 Wallace v. City of San Diego, 479 F.3d 616 (9th Cir. 2007) . . . . . . . . . . . . . . . . 26

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Wei Zhang v. Am. Gem Seafoods, Inc., 339 F.3d 1020 (9th Cir. 2003) . . . . . . . . 26 Williams v. Bear Stearns & Co., 1998 Fla. App. LEXIS 16012, 725 So. 2d 397 (Fla. App. 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101 (9th Cir. 2001) . . 26 Zamora v. Shell Oil Co., 55 Cal.App.4th 204, 208-213 (1997) . . . . . . . . . . . . . . 44 Zhang v. American Gem Seafoods, Inc., 339 F.3d 1020 (9th Cir. 2003) . . . . . . . 26

STATUTES AND RULES Fed. Rule of Civ. Proc., Rule 50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Fed. Rule of Civ. Proc., Rule 50(a) . . . . . . . . . . . . . . . . . . . . . . 1, 23, 25-27, 51, 52 Fed. Rule of Civ. Proc., Rule 50(b) . . . . . . . . . . . . . . . . . . . . . . . . 23-26, 28, 34, 49 Fed. Rule of Civ. Proc., Rule 59 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 27, 50 Ninth Cir. Rule 28-2.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Circuit Rule 28-2.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

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JURISDICTIONAL STATEMENT Plaintiff-Appellee Hannibal Pictures Inc. agrees with the jurisdictional statement set forth in Appellants Opening Brief (AOB) at p. 1.

STATEMENT OF THE ISSUES PRESENTED FOR REVIEW 1. Whether Defendants have waived their contentions that the economic

loss rule precludes Plaintiffs recovery for any tort damages and that they are entitled to judgment as a matter of law as to the claimed excessive damages, because neither issue was raised in a previous Rule 50(a) motion. 2. Even assuming arguendo that the issues are not waived, whether the

economic loss rule bars a fraud claim which is not grounded in the performance of a contract. 3. Whether Defendant Sonja Morgan, who was not even a party to the

contract, can rely on the economic loss rule to shield herself from fraud liability just because Plaintiff has a breach of contract claim against another Defendant. 4. Whether the District Court properly denied Defendants post-trial

motion challenging the jurys award of compensatory damages, where there is substantial evidence including the testimony from a well qualified expert that it is reasonably certain that absent Defendants wrongful conduct, Plaintiff, an established production company with a proven track record, would have completed the film which would have generated the very net profits awarded by
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the jury.

STATEMENT OF THE PERTINENT STATUTES An addendum of the pertinent statutes (Federal Rules of Civil Procedure 50 and 59) is attached to the end of this brief. Ninth Cir. Rule 28-2.7.

STATEMENT OF THE CASE Plaintiff Hannibal Pictures, Inc. is a well-established independent producer of financially successful, worldwide distributed films, which star respected actors including Oscar winners. Hannibals CEO Richard Rionda set out to produce the film Fast Flash to Big Bang by purchasing the option to the screenplay written by a well-known screenwriter; securing a commitment from its regular lender Royal Bank of Scotland to finance the films production; obtaining (by virtue of its reputation and track record) John Travoltas commitment to star in the film alongside his preferred co-star Rosario Dawson; and making several millions of dollars of pre-sales to international film markets in anticipation of the films production and distribution. The film was destined to follow the financially successful path of Hannibals other films distributed to global film markets; that is, until Defendants Sonja Morgan and Sonja Productions entered the scene.

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(6/9RT:19,149-154, 6/10RT:8-15, 6/11RT:18.)1 Sonja Morgan, then the wife of John Adams Morgan, an heir to the J.P. Morgan banking empire, made numerous misrepresentations to Hannibal which induced Hannibal to enter into an agreement with Morgan and her production company to fund the films production. These misrepresentations led Hannibal to believe that Ms. Morgan had ample ready cash to see the project through to completion. When it suddenly turned out Ms. Morgan lacked these funds and Travolta withdrew, the project fell through, and Hannibal lost millions and was effectively blacklisted in film circles and unable to produce a movie for several years. (6/10RT:129-133, 138, 142; 6/11RT:33; 6/12RT:57, 71, 172; 6/16RT:113; 6/17RT:138, 130-161; SER:269-270, 273-274, 278-279.) After an eight day trial, the jury returned a verdict for Plaintiff and against Defendants on all claims, as follows: breach of contract and breach of the covenant of good faith and fair dealing, against Sonja Productions - as the contracting party - and Sonja Morgan, individually, as the alter ego of Sonja Productions (6/19RT:30-33);

Record citations are as follows: - Reporters Transcript - Date: page - Appellants Excerpts of Record - ER: page - Appellees Supplemental Excerpts of Record - SER: page - Clerks Docket: CD: docket number
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negligent misrepresentation and fraud, against Sonja Morgan individually, and against Sonja Productions (6/19RT:33-38.)

Sonja Morgan engaged in her fraudulent conduct by clear and convincing evidence (6/19RT:39);

Hannibal Pictures compensatory damages are $6,816,294. (6/19RT:30-39.)

After evidence of Sonja Morgans financial condition was introduced, the jury assessed $250,000 in punitive damages against her. (6/19RT:68.) As detailed below, Defendants made post trial motions raising limited issues. (6/19RT71-72.) The District Court struck the alter ego finding but otherwise denied the motion.

STATEMENT OF FACTS A. The Parties. 1. Plaintiff Hannibal Pictures - a successful, established producer of films distributed worldwide and starring Oscar-winning actors. Plaintiff Hannibal Pictures, Inc., an established company specializing in co-productions of motion pictures distributed worldwide (6/9RT:152-154) had optioned the right to make an independent film called Fast Flash to Bang Time (Fast Flash) and was shopping the project around. (SE:27-28, 118-123.) The
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script for Fast Flash was written by Peter Illiff, who is best known for his screenplays for Point Break, Patriot Games and Varsity Blues. (6/10RT:8.) John Travolta expressed interest in starring in the film, and Hannibals customary lender Royal Bank of Scotland, with whom Hannibal had already made four profitable films, had committed to lend the project $17 million budgeted for the film. (6/10RT:12-15.) Hannibal Pictures was founded in 1999 by Richard Rionda del Castro and his wife, Patricia. The company finances, produces and distributes three to six motion pictures per year with budgets ranging from three to twenty million dollars ($3,000,000-$20,000,000). (6/19RT:149-151.) Hannibal has carved out an excellent reputation as a major player in the independent movie production business. (6/9RT:151-154.) Hannibals movies have starred Oscar-winning actors including Rod Steiger, Kevin Spacey, Gerard Depardieu, and Adrien Brody, among others. (6/9RT:152-154, 6/9RT:19.) Every one of the films produced and distributed by Hannibal has been profitable. (6/11RT:18.)

2.

Defendant Sonja Morgan represents that she, her husband, and her company has $25-50 million to produce up to five films.

Sonja Tremont-Morgan, then the wife of John Adams Morgan, an heir to the J.P. Morgan banking empire, founded Sonja Productions. (6/12RT:172.) Morgan named herself President and Chairman of Sonja Productions, and gave herself
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power of attorney to greenlight any project and/or package to go into production for Sonja Productions. (SE:29-90; 6/16RT:21; SER:91-117.) Ms. Morgans new company, Sonja Productions had a business plan to package a slate of five pictures in the budget range of $25 million to $50 million during the time frame of September 2005 to December 2007. (6/12RT:175, SER:1-22.) Sonja Productions had several employees, including Silvio Sardi, who held the title of managing director as executive in charge of production. (6/12RT:176 -177.) Although Sonja Productions was wholly owned by Ms. Morgan (SER:91117), the company had a Board of Directors, which included Morgans husband, John Adams Morgan, whose profile also appeared on the website touting him as an officer and vice president in charge of business and financing. (6/16RT:113.) Sonja Productions announced its business plan on its website, drafted by Mr. Sardi and approved by Ms. Morgan, stating: Sonja Productions, established August 2005, has cash funding to invest in 2006/2007 in five motion pictures in the range of U.S. dollars 25 to 50 million. (6/12RT:57, 71; SER:19.)

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B.

Ms. Morgan Fraudulently Misrepresents Her Cash Funds On Hand To The Independent Film Market, Lures Hannibal With Her Misrepresentations Of Millions In Cash, And Induces Hannibal To Agree To Allow Morgan To Fund The Production Of Fast Flash.

Ms. Morgan attended the American Film Market (AFM) with Mr. Sardi to meet with producers regarding potential projects. During this time, Sonja Productions placed an ad in Variety magazine announcing that Sonja Productions, established in August 2005, has cash funding to invest in 2006, 2007 in five motion pictures in the range of $25 million to $50 million for each film. (6/11RT:27-29.) This ad included a listing of Sonja Productions board of directors including John Adams Morgan. (6/11RT:43.) Around this time, Mr. Sardi introduced Ms. Morgan to attorney Donald Barton (6/16RT:101), who subsequently became Sonja Productions lawyer (6/12RT:94). During Bartons initial meeting with Sonja Productions, Ms. Morgan informed Mr. Barton that she was John Morgans wife and that she wanted to produce a slate of movies over the next year or two and had $50 million available and allocated to production. (6/16RT:104.) Mr. Barton testified that he was present during meetings with Sonja Productions and various producers, and that Ms. Morgan and Mr. Sardi told these producers that Sonja Productions had cash to invest in projects and did not need to raise capital to fund projects.
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(6/16RT:116-117.) Mr. Barton represented a number of producers, distributors, and writers. (6/16RT:98.) Mr. Barton had represented Hannibal and was aware of the Fast Flash screenplay, and thought it might be a good project for Sonja Pictures. (6/16RT:115-116.) Sonja Morgan agreed and became interested in meeting with Hannibal, so Mr. Barton set up a meeting between Hannibal and Sonja Productions. (6/15RT:30-31, 6/16RT:67.) Sonja Productions and Hannibal met on November 9, 2005 at Hannibals offices. (6/11RT:32, 6/16RT:117.) The parties discussed Fast Flash and Ms. Morgan introduced her company to Hannibal. (6/11RT:32.) Ms. Morgan announced she had $50 million in a bank account, she loved Fast Flash, and she wanted to produce the film with Hannibal. (6/11RT:33.) After several discussions between Hannibal, Ms. Morgan, and the employees of Sonja Productions, the parties entered into a deal memorandum (the Contract) for the financing and production of Fast Flash. (6/18RT174.)

C.

The Terms Of The Contract.

Under the Contract, Hannibal agreed to assign to Sonja Productions all its rights, title, and interest in Fast Flash to Bang Time, and Sonja Productions agreed to cash flow 100% of the approved production budget for the film, estimated at $18,500,000.00, and to provide 60% of this amount, or
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$11,100,000.00, as equity in the project. (ER:160-166.) Sonja Productions further agreed to pay Hannibal a producer fee of $800,000, and to reimburse Hannibals prior expenses in the amount of $52,094.00. (ER:163-164.) Hannibal would act as the exclusive international sales agent for the film, with a fee equal to 20% of gross receipts based on a $200,000.00 marketing budget; and Hannibal Pictures and Sonja Productions would jointly act as sales agents for the United States, with Hannibal Pictures receiving a fee between 6% and 12% of the sales. (ER:163-165.) Hannibal Pictures would receive screen credit on the film and 20% of worldwide profits, with Sonja Productions receiving 80%. (ER:165.)

D.

Hannibal Satisfies Its Primary Obligation To Secure John Travoltas Written Confirmation To Star In The Film.

One significant condition precedent to the Contract was written confirmation that John Travolta would be attached to the project as the male lead. (6/18RT:174.) The Contract provided that it would be voidable if such confirmation was not received by January 31, 2006. (ER:162.) Hannibal Pictures informed Sonja Productions in approximately early December 2006 that a deal with Mr. Travolta was done, subject to approval of the female co-star and the start date. (6/10RT:83-84.) Hannibal Pictures worked diligently to obtain approval from Mr. Travolta for a start date and for Ms.
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Morgans preferred co-star, Rosario Dawson. (SER:244-256.) On January 25, 2006, Hannibal and Sonja Productions executed a written amendment to the Contract (the Amendment) extending the date for confirmation of Mr. Travolta as male lead to February 28, 2006. (6/18RT174-175; ER:160.) Under the Amendment Sonja Productions would immediately pay Hannibal Pictures the reimbursement amount of $52,094. (ER:160.) On January 27, 2006, Mr. Travolta, acting through his duly authorized representative, confirmed his participation in the film, his approval of Rossario Dawson as co-star, and his approval of a start date in March 2006. (ER:158.) The project was also progressing rapidly in areas additional to casting. Numerous visits to the production location, Florida, had resulted in meetings with the local legislature and approval of the production of the film in Florida as well as preapproval of the state tax rebate. (6/9RT:165, 6/10RT:141.) And, even though production had yet to begin on Fast Flash, Hannibal had already presold the licensing of the film to various territories around the world for the sum of Six Million Seven Hundred Seventy Six Thousand Dollars ($6,776.000). (SER:153243, 259-267, 282-299.) Further, Hannibal had secured a completion bond from International Film Guarantors (IFG), a Firemans Fund subsidiary, which guaranteed to the films producer and any financier or lender on the film, that the film would be delivered. (6/10RT:36.) Hannibal duly and timely delivered this completion bond and all
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other documents required under the Contract to Sonja Productions. (6/10RT:3638.) Because of the imminent start date, and the immediate need to start paying under Mr. Travoltas pay-or-play agreement, it became critical that Sonja Productions begin financing as provided by the Contract, so that the project could move forward. (ER155-156.)

E.

Morgan Breaches The Contract And Fails To Provide The Required Proof Of Funds.

On January 31, 2006, Hannibals CEO Richard Rionda del Castro and Patricia del Castro met with Ms. Morgan and Silvio Sardi in Los Angeles. (See Exhibit 183.) Ms. Morgan told Mr. Rionda and others that all funds necessary to finance the project were located at City National Bank and would be ready to be transferred to a film production account in a couple days. (SER: 280-281.) Ms. Morgan also stated that Sonja Productions would provide proof of funds the next morning, February 1, 2006, and would immediately begin cash flowing to the picture by depositing monies into an escrow account for John Travoltas services. (SER:280-281.) Furthermore, Ms. Morgan stated that Sonja Productions had already issued and mailed Hannibal the promised reimbursement check for $52,094. (SER:280-281.) Despite Ms. Morgans representations, no proof of funds was ever provided
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to Hannibal or to John Travoltas representatives as promised. On February 1 and 2, 2006, Hannibal and attorney Donald Barton (Sonja Productions attorney) made numerous attempts to contact Sonja Productions to obtain proof of funds. (SER:269-270, 273-275, 278-279.) During the same period, Mr. Travoltas representatives repeatedly requested the proof of funds from Hannibal and insisted that an amount equal to Mr. Travoltas fixed compensation for the picture be placed in escrow in order to sign the negotiated agreement with Mr. Travolta. (SER:271, 275-277.) In reliance on promises from Ms. Morgan and Sonja Productions, Hannibal repeatedly assured Mr. Travoltas representatives that the proof of funds and escrow monies would be forthcoming imminently. (SER:268, 272.) On or about February 3, 2006, Ms. Morgan informed Hannibal that Sonja Productions would not provide any funding at all for the film. Ms. Morgan also stated, contrary to her prior representations, that there were no funds available to finance the project. (6/10RT:129-130.) Morgans sudden failures and Travoltas withdrawal left Hannibal with no time or opportunity to salvage the production of Fast Flash. (6/10RT:130-133,142.) On February 6, 2006, Hannibal received the $52,094 reimbursement check issued by Morgan and deposited the check. (SER:23-26, 257-258.) However, Sonja Productions stopped payment on the check. (6/18RT:175.)

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F.

The Collapse Of The Film Production Causes Hannibal Significant Damages.

Plaintiffs expert, Lawrence P. Mortorff, a 1973 graduate of UCLA law school, has had extensive experience in the entertainment industry with a well-known talent agency and respected film and television production companies. (6/17RT:101-103.) Mr. Mortorff has been involved as a producer in over thirty-five motion pictures and has written a treatise on entertainment law. (6/17RT:104-105.) Mr. Mortorff emphasized that Hannibal had already gone a long way towards entering into [presales] agreements by the time Defendants unilaterally withdrew their support of Fast Flash. (6/17RT:131.) Mr. Mortorff highlighted that it is custom and practice for producers to obtain foreign presales by having producers go to their buyers in their territories and try to enter into a [presale] contract for the sale or license of rights to a movie that has yet to be produced. (6/17RT:114.) And in order for the buyers to value the yet to be produced movie, the buyers will consider the elements attached, i.e., actor, director, producer, [and] budget. (6/17RT:114.) Buyers also value yet to be produced movies based upon information provided by the producers in the form of worldwide sales projections. (Id.) Hannibal prepared worldwide sales projections for Fast Flash based on the following elements attached to the film: John Travolta (actor), Peter W. Illif
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(director), Hannibal Pictures (producer), and an $18.5 million cash budget, as well as years of expertise as a film producer. (6/10RT:18-24; SER:282-299.) As is typical in the entertainment industry, the worldwide sales projections contained projections for both ask and take sales figures. (6/17RT:115.) Mr. Mortorff explained that [m]ost foreign sales agents [or producers] are fairly experienced, know their buyers, and know that if the picture costs $18 million its worth 3 percent in Spain or 6 percent in France. (6/17RT:115.) Based upon their experience with the markets, producers will then establish what they are going to ask the buyer to pay versus the take price. (6/17RT:115.) By way of example, Mr. Mortorff analogized ask versus take price to the jury by looking at a real estate transaction where an individual might ask to sell a home at a higher price then what the individual might ultimately take to sell the home. (6/17RT:115.) Hannibal Pictures had already secured presales for Fast Flash at prices above the take prices estimated in the worldwide sales projections. (6/17RT:131-132; SER:153-243, 259-267.) The damages assessment presented to the jury in the form of Mr. Mortorffs testimony was based on the much more conservative take price. (6/17RT:131133.) This conservative assessment of damages was presented despite the evidence that Hannibal had already obtained presales that outperformed the worldwide sales projections for the take price. The take price for worldwide sales projections for Fast Flash was $15.3 million for international sales and $10
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million for domestic sales, totaling approximately $25.3 million in sales. (6/17RT132; SER:282-299.) Based upon the conservative take price sales projections of $25.3 million, Mr. Mortorff went through the calculations demonstrating how Hannibal Pictures would have earned approximately Six Million Eight Hundred Thousand Dollars ($6,800,000) had Fast Flash been produced. (SER:177; 6/17RT:131-161.) Mr. Mortorffs calculations were based on hard damages, non-speculative numbers based on the contract language and agreements for domestic and foreign presales. (6/17RT:130-161.) Mr. Mortorff opined that a movie with a star like John Travolta attached would easily be able to garner $10 million for a U.S. distribution deal. (6/17RT:148.) Under even the most conservative of estimates, Fast Flash would have generated at least $25 million in worldwide sales, of which Hannibal Pictures would be entitled to approximately $7 million. (6/17RT:152-153.) Hannibal had already secured over six million dollars in foreign pre-sales. (SER:124-176, 187-243, 259-267, 282-299.) Mr. Mortorff testified extensively that despite a general understanding that there would be less foreign sales without a domestic (U.S.) distribution agreement in place: with a star like John Travolta, in this case in particular, the take price is territory by territory proven up by the sales agent Hannibal Pictures. And a buyer to get the John Travolta picture probably
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wouldnt necessarily require you to have a U.S. distributor. They would probably assume you would have one. And with a John Travolta picture, at some point you would have a U.S. distributor. You would never go undistributed on the picture. (6/17RT:158.) The following summarizes the undisputed testimony of Mr. Mortorffs calculations of the damages based on the terms of the contract: 1. $3.1 million: Hannibal Pictures was entitled to a 20 percent

commission for all international sales ($15.3 million). (6/17RT:132; SER:177186.) 2. $20,000: Hannibal Pictures was entitled to 20 percent of an ancillary

figure ($100,000). ( Id.) 3. $600,000: Hannibal Pictures was entitled to a 6 percent commission

for domestic sales ($10 million). (6/17RT:132-133; SER:177-186.) 4. $200,000: Hannibal Pictures was owed marketing expenses

($200,000). (6/17RT:134; SER:177-186.) 5. $666,000: Hannibal Pictures was owed a cash tax rebate of 15

percent for the amount of the production budget that would have been spent in Florida ($11.1 million). (6/17RT:134-135; SER:177-186.) 6. $800,000: Hannibal Pictures was owed a producers fee ($800,000).

(6/17RT:135; SER:177-186.)
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7.

$1.2 million: Hannibal Pictures was entitled lost recoupment of

unspent funds from the films budget, costs and expenses were paid ($2-$3 million). (6/17RT:136; SER:177-186.) Ms. Morgan admitted that based on the sales projections for Fast Flash, the film was likely to be a great success and generate millions of net profit and producer fees to her and her company. (6/12RT:104-105.)

APPELLEES REBUTTAL TO DEFENDANTS STATEMENT OF CASE AND STATEMENT OF FACTS Throughout its brief, Defendants make statements that are either not supported by the record or which are contradicted by other evidence. Since the evidence must be reviewed in the light most favorable to the judgment, Defendants slanted and unsupported presentation of the facts is improper and, at minimum, should be stricken.2 Below Plaintiff highlights a few of Defendants factual mischaracterizations: 1. Defendants Opening Brief: This is case about one of the many

Every assertion in briefs regarding matters in the record shall be supported by a reference to the location in the excerpts of record where the matter is to be found. Circuit Rule 28-2.8; N/S Corp. v. Liberty Mut. Ins. Co., 127 F.3d 1145, 1146-1147 (9th Cir. 1997). The failure to provide proper citations to the record in the brief is sanctionable, including dismissal of the appeal. See Circuit Rule 28-2, Adv.Comm. Note; N/S Corp. v. Liberty Mut. Ins. Co., supra, 127 F.3d at 1146.
2

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countless failed movie projects in Hollywood. (AOB2.) Defendants attempt to cast this case as just another typical pie-in-the-sky dream of starry-eyed wannabe movie producers was contradicted by the evidence, was rejected by the jury, and should be soundly rejected again on appeal. In truth, this movie production - which had received firm, written commitments from both John Travolta and his co-star Rosario Dawson, had quickly generated pre-sales of over $6 million, and had received a $6 million loan commitment from the Royal Bank of Scotland towards production - failed because of Ms. Morgans lies that she and her husband (a J.P. Morgan heir) were able to fund the picture with their own money, when in truth Ms. Morgan did not have the money. (6/10RT:130-133.) 2. Defendants Opening Brief: Hannibal Pictures, Inc. (Hannibal

Pictures) [is] a small Hollywood production company with few credits to its name. . . . (AOB3.) In truth, since 1999, Hannibal has been involved in major independent movie production starring world-famous and Oscar-winning actors, with international distribution, and has carved out an excellent reputation as a major player in the independent movie production business. (6/9RT:151-154.) Hannibals movies have starred Kevin Spacey, Gerard Depardieu, Adrien Brody and Rod Steiger, among others. (6/9RT:152-154, 6/11RT:19.) 3. Defendants Opening Brief: Fast Flash to Bang Time (Fast
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Flash) [was] a feature film potentially starring John Travolta. (AOB3.) Throughout Defendants Brief, reference is made that John Travolta was merely a potential star of the film, that he did not commit to the film, and that when Ms. Morgan purportedly learned Travolta would not be involved, she withdrew her participation in the film. In truth, as numerous witnesses testified (including Ms. Morgans own film manager Sardi), John Travoltas attorney had given written confirmation of Travoltas commitment to do the film. Travoltas lawyer Mike Ossi sent Hannibal written confirmation (Ex. 156.) Several witnesses including Ms. Morgans own manager Sardi confirmed it was the custom and practice in the film industry for written confirmation to come from the stars agents and/or attorneys, not from the star himself. (6/17RT:81, 6/17RT:124.) 4. Defendants Opening Brief: Ms. Morgans previous film was

critically acclaimed but a commercial failure. (AOB3.) In truth, the relevance to Plaintiff of Ms. Morgans first film, The Marsh, starring Forrest Whittaker, is that it was just another piece of Ms. Morgans fraud to induce Plaintiffs reliance on her representations that she had immediate cash available to produce films. (6/10RT: 33-34.) 5. Defendants Opening Brief: Before the film got off the ground,

Defendants withdrew from the agreement in large part because of Hannibal Productions business practices and because Ms. Morgan was and is in the middle of a highly contentious divorce including a custody battle over her young
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daughter. (AOB3.) In truth, Defendants withdrew because her lies about her funding were exposed - she simply could not come up with the funds to which she had promised Hannibal (and indeed the rest of the film production world) she had free access. Mr. Barton, one of Ms. Morgans lawyers, testified that he was told by Ms. Morgan she had $50 million to fund movies, that J.P. Morgan Bank was behind her, that she had the backing of her husband John Adams Morgan, and that had Barton known that there was no money, he would have ceased work on the project because he knew that his credibility was on the line. (6/16RT:177,190,194,196.) Kelsey Howard, an independent film producer, testified he was also told by Ms. Morgan that she and her husband had $50 million to spend on movies and that money is not an issue. (6/12RT:14-15.) Mr. Rionda testified extensively that Ms. Morgan told him money was not a problem for the Morgans, that they had $50 million to spend on film productions. (6/10RT:2.) Ms. Morgan herself admitted that she never told her attorney Mr. Barton that she did not have money available and instead had to raise the money to invest in the film. (6/15RT:94.) Ms. Morgans website for Sonja Productions also falsely represented that it had $50 million in cash funding to invest in film productions and that her
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husband John Adams Morgan was an officer and vice president in charge of business and financing. 6. Defendants Opening Brief: Hannibal Productions did not secure

any investors after Sonja Productions withdrew and the film was never made. (AOB3.) In truth, as the jury concluded from the evidence, once Defendants promises were exposed, Defendants failed to deliver proof of funds to John Travolta as promised, and the film lost its ability to cast Travolta as its star because of his tight filming schedule, Hannibal had no time to salvage the project. (6/10RT:121-122,142.) 7. Defendants Opening Brief: Sonja Productions business plan was

to . . . find outside investors to raise between $25 million and $50 million to finance and produce those films. (AOB9.) But this is not what Ms. Morgan told Hannibal. She did not disclose that she had to raise the money from outside investors. Her manager Silvio Sardi contradicted Ms. Morgans testimony and testified the money simply was never there. (6/11RT:58.) Every other witness, including independent witnesses like Kelsey Howard, testified they were never given the business plan, and were never told Ms. Morgan had to raise the money from the outside. (6/11RT:75, 6/12RT:15.) To the contrary, Ms. Morgan consistently told all parties, that she had the cash at hand and was ready to do the deal. (Ibid.)
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8.

Defendants Opening Brief: And when it became clear to Hannibal

Productions that Sonja Productions did not have $6,000,000 lying around, Hannibal Productions CEO Richard Rionda del Castro suggested that Sonja Productions falsify documentation that could be shown to Mr. Travolta as evidence that Sonja Productions could provide Mr. Travoltas salary with cash on hand. Id. at 128:22-129:10. At that same meeting, Mr. Rionda tried to pressure Sonja Productions into producing an unrelated independent film titled Chasing the Dragon. Mr. Rionda even suggested that Sonja Productions could use the same falsified proof of funds for both Mr. Travolta and Chasing the Dragon, and he acknowledged that he falsely represented to prospective investors for Chasing the Dragon that Sonja Productions had several million dollars on hand. (AOB16-17.) To the extent Ms. Morgans assertions are unsupported by any record citations they should be disregarded. The one record citation does not support Morgans assertions and should also be disregarded. In truth, the evidence showed that when Ms. Morgan claimed she didnt have $5.8 million in one account but had that amount in various accounts, Ms. Morgan was told that it was sufficient to show proof of funds from more than one account. (6/17RT:178; SER:273.) Mr. Rionda emphatically denied ever asking Morgan to falsify documents, and Mr. Sardi admitted Mr. Barton also never made such a request. (6/10RT:121-122; 6/11RT:115.) Instead, as Ms. Morgans own
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manager Mr. Sardi testified, the plain fact is that Ms. Morgans false promises were exposed: I think she has two faces. She was excited up front to them [Hannibal] because the deal was done and then the other side she was stressed because now she knows she didnt have the money at this time. (6/11RT:195.)

SUMMARY OF THE ARGUMENT Defendants ask this Court to reverse the District Courts orders denying their post-verdict motions for judgment as a matter of law (Rule 50(b) motions) on the grounds that (1) the economic loss rule precluded Plaintiff from recovering in tort, and (2) the damages relating to lost profits are excessive. However, because neither of these issues were raised in a prior Rule 50(a) motion, they have not been preserved on appeal. Defendants are therefore precluded from seeking reversal of the District Courts denial of their motions for judgment as a matter of law. Furthermore, as explained below, the economic loss rule would not bar recovery in tort here. As concluded by the District Court, Defendants fraudulent representations were not simply reiterations of the obligations in the contract but rather affirmative misrepresentations intended to deceive Hannibal. Defendants alternative request that this Court reverse the district courts denial of the motion for new trial or remittitur, hold that the jurys damages award was excessive as a matter of law, and thus require Hannibal Pictures to accept the reduced award or to submit to a new trial, similarly fails. (AOB56.) Notably,
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Defendants motion for new trial was brought on the sole ground that the damages are excessive. Thus, Defendants have not preserved the right, and have not requested, a new trial as to the economic-loss-rule issue. With respect to the excessive damages issue, a district courts denial of a motion for new trial will not be overturned absent a clear abuse of discretion i.e., only where there is an absolute absence of evidence to support the jury's verdict. Desrosiers v. Flight Int'l of Florida Inc., 156 F.3d 952, 957 (9th Cir. 1998) (emphasis added). As set forth in detail below, Defendants have patently failed to meet this high burden. As such, no new trial is warranted and the District Courts order should be affirmed.

ARGUMENT I. DEFENDANTS FAILURE TO COMPLY WITH FEDERAL RULE OF CIVIL PROCEDURE 50(a), FORFEITS THEIR REQUEST THAT THIS COURT REVERSE THE DISTRICT COURTS DENIAL OF THE RENEWED MOTIONS FOR JUDGMENT AS A MATTER OF LAW Defendants ask this Court to reverse the District Courts denial of their postverdict motion for judgment as a matter of law filed pursuant to Federal Rule of Civil Procedure, Rule 50(b) and enter judgment in their favor due to (1) the economic loss rule and (2) the supposed absence of evidence supporting the jurys
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damage award. (AOB56.) The first fatal flaw with Defendants requested relief however is that Defendants failed to preserve these issues on appeal. Defendant Sonja Morgan brought a Rule 50(a) motion on only one ground, i.e., that there was insufficient evidence to support a finding of alter ego. (6/17RT:164.) This Motion was later renewed under Rule 50(b) and granted by the District Court judge (and is thus obviously not being challenged by Defendants on appeal). After the verdict had been reached, Defendants Sonja Productions and Sonja Morgan brought Rule 50(b) Motions on several other grounds, including that Plaintiffs negligent misrepresentation and fraud claims fail under the economic loss rule and that the damages awarded were improper because Plaintiff failed to offer any evidence that the movie would have been made but/for the lack of funding by Defendants. (CD179:20.) These issues were never previously raised in a Rule 50(a) motion. The scope and propriety of a Rule 50(b) motion is controlled by Rule 50(a). Rule 50(a) permits a party to move for judgment as a matter of law after the opposing party has been fully heard and prior to the submission of the case to the jury. Fed.R.Civ.P. 50(a)(1). If a Rule 50(a) motion is denied, Rule 50(b) allows the moving party to renew its motion within ten days after the court's entry of final judgment in the case. Fed.R.Civ.P. 50(b). A party cannot raise arguments in its post-trial motion for judgment as a matter of law under Rule 50(b) that it did
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not raise in its pre-verdict Rule 50(a) motion. Freund v. Nycomed Amersham, 347 F.3d 752, 761 (9th Cir.2003). The moving party is limited to the specific grounds raised in the pre-verdict motion. Wallace v. City of San Diego, 479 F.3d 616, 620 (9th Cir. 2007). The failure to raise arguments addressed in a partys post-trial motion for judgment as a matter of law under Rule 50(b), in a previous pre-verdict Rule 50(a) motion, results in a complete waiver, precluding our consideration of the merits of the issue. Wei Zhang v. Am. Gem Seafoods, Inc., 339 F.3d 1020, 1028-29 (9th Cir. 2003). This is particularly true with regard to challenges on the grounds of sufficiency of the evidence. To preserve the right to appellate review on the ground of insufficient evidence, a party ordinarily must make a motion for judgment as a matter of law in the trial court. Zhang v. American Gem Seafoods, Inc., 339 F3d 1020, 1028-1029 (9th Cir. 2003); Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F3d 1101, 1109 (9th Cir. 2001). Appellate courts will thus not review a district court denial of a judgment as a matter of law motion based on insufficiency of the evidence unless appellant made the motion at the close of all the evidence and before the matter was submitted to the jury pursuant to FRCP 50(a), and then renewed it after the verdict pursuant to FRCP 50(b). Nitco Holding Corp. v. Boujikian, 491 F.3d 1086, 1089 (9th Cir. 2007); Wallace v. City of San Diego, 479 F.3d 616, 631 (9th Cir. 2007) [issue not preserved for appeal
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where renewed Rule 50(b) motion for JMOL not preceded by Rule 50(a) motion setting forth specific grounds raised on renewed motion.]. Where a party has failed to properly preserve a challenge to sufficiency of the evidence, the issue is forfeited. The court will not review the matter even for plain error apparent on the face of the record. Nitco Holding Corp. v. Boujikian, supra, 491 F.3d at 1089-1090 (9th Cir. 2007) (overruling prior conflicting Ninth Circuit cases). Here, as the issues concerning Plaintiffs right to recover in tort and whether substantial evidence exists to support the lost profit damages award were not raised in a Rule 50(a) motion, they have not been preserved on appeal.3 Defendants are therefore precluded from seeking reversal of the District Courts denial of their motions for judgment as a matter of law.

While Defendants alternatively seek reversal of the District Courts denial of their Rule 59 New Trial Motion (AOB56), it should be noted that Defendants new trial motion was solely on the grounds of substantial evidence to support the award of lost profit damages and did not include the argument now raised concerning the application of the economic loss rule. Therefore, Defendants have waived even the right to seek a new trial based on their economic loss rule argument.
3

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II.

EVEN IF THE ISSUE HAD NOT BEEN WAIVED BY DEFENDANTS, THE ECONOMIC LOSS RULE DOES NOT EXTEND TO BAR HANNIBALS FRAUD BASED CLAIMS Defendants argue that Hannibals fraud and misrepresentation claims are no

more than a restatement of the breach of contract claims and thus barred by the economic loss rule. (AOB20-33.) Defendants ignore the context of the fraudulent misconduct in this case as outlined by the District Court and simply reiterate the principle that a party may not ordinarily recover in tort for the breach of contractual duties. While Defendants criticize the District Courts ruling denying their Rule 50(b) motion on this ground, arguing that the District Court blindly held that the economic loss rule did not apply simply because the tort claims concerned fraud and misrepresentation, Defendants completely overlook the District Courts detailed ruling outlining the evidence of extra-contractual breaches presented to the jury. Furthermore, Defendants emphasis on the harm caused by the fraudulent conduct as being purely economic and therefore absolutely barred by the economic loss rule is misplaced. The California Supreme Court has expressly rejected barring tort recovery simply because the Defendants intentional breach of a duty imposed by law caused purely monetary harm to the Plaintiff. The District Courts ruling denying Defendants request to limit Hannibals damages to only those in contract should thus be affirmed.
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A.

The Evolution Of The Economic Loss Rule.

The economic loss rule originated in products liability cases where the product purchasers brought claims because their expectations were frustrated when the product did not work properly. In this setting the Courts held that the purchasers remedy is in contract alone, for he has suffered only economic losses. See Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 988-989. As explained by the Robinson Court, the function of the economic loss rule is to prevent tort law from shifting back to sellers a specific risk that better rests with buyers-the risk that a product will not perform to a particular level beyond that warranted by the seller. Id. at 997-998. While the economic loss rule first arose in product liability cases, it has since also been given limited application outside of that setting. Thus, in Aas v. Superior Court, 24 Cal.4th 627, 642-643 (2000), the Court applied the economic loss rule to preclude recovery of tort damages in the context of a case where the Plaintiff claimed that the Defendant negligently failed to perform a contract to construct a home. See Robinson, at pp. 990-991. But, in reaching this conclusion, the Court emphasized that conduct amounting to a breach of conduct becomes tortious when it also violates a duty independent of the contract arising from principles of tort law. Aas, at p. 643. Thus, in Robinson, the Court explained: Tort damages have been permitted in contract cases where a breach of duty directly causes physical injury [citation]; for breach of the
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covenant of good faith and fair dealing in insurance contracts [citation]; for wrongful discharge in violation of fundamental public policy [citation]; or where the contract was fraudulently induced. [Citation.] [Citation] [I]n each of these cases, the duty that gives rise to tort liability is either completely independent of the contract or arises from conduct which is both intentional and intended to harm. [Citation.] [Citations] The Court elaborated: Focusing on intentional conduct gives substance to the proposition that a breach of contract is tortious only when some independent duty arising from tort law is violated. [Citation.] If every negligent breach of a contract gives rise to tort damages the limitation would be meaningless, as would the statutory distinction between tort and contract remedies. [Citation] Robinson, at pp. 989-990 (emphasis added). Accordingly, the Supreme Court held that the economic loss rule is designed to limit liability in commercial activities that negligently or inadvertently go awry, not to reward malefactors who affirmatively misrepresent and put people at risk. Robinson, at p. 991. Because of the extra measure of blameworthiness inhering in fraud, and because in fraud cases we are not concerned about the need for predictability about the cost of contractual relationships [citation],
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fraud plaintiffs may recover out-of-pocket damages in addition to benefit-of-the bargain damages. [Citation] In addition, California also has a legitimate and compelling interest in preserving a business climate free of fraud and deceptive practices. [Citation] Needless to say, Danas fraudulent conduct cannot be considered a socially useful business practice[ ]. [Citation] As one court stated, Simply put, a contract is not a license allowing one party to cheat or defraud the other. [Citation] Robinson, at pp. 991-992. Therefore, in California, the economic loss doctrine bars recovery in tort for purely monetary harm in product liability and negligence cases. While some courts have further extended the rule to bar recovery for other tort claims, it is only where the Plaintiffs claim is that the Defendant failed to perform what was promised in the contract. Obligations breached by a Defendant outside of the contract are not barred by the economic loss rule as they do not concern mere restatements of contractual breaches. Further, and contrary to Defendants claim, there is no support for the extension of the doctrine to bar recovery in tort where the Defendant had a duty imposed by law (tort duty) rather than by contract and where the Defendants intentional breach of that duty caused purely monetary harm to the Plaintiff. Giles v. General Motors Acceptance Corp., 494 F.3d 865 (9th Cir. 2007) is
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on point.4 In Giles, this Court explained that while the economic loss doctrine has not been confined to product liability cases. When applied in cases outside the product liability context, the doctrine has produced difficulty and confusion. In such cases, as lamented by the Florida Supreme Court, the [economic loss] rule has been stated with ease but applied with great difficulty. [citation omitted.] Id. p. 874. One reason for the difficulty is that many courts have stated in overly broad terms that purely economic losses cannot be recovered in tort. [Citations] Such broad statements are not accurate. Tort law has traditionally protected individuals from a host of wrongs that cause only monetary damage. As the Utah Supreme Court has noted, torts such as fraud and conversion exist to remedy purely economic losses. Grynberg v. Questar Pipeline Co., 2003 UT 8, 70 P.3d 1, 11, 13 (Utah 2003) (emphasis added). Many courts have explicitly refused to extend the economic loss doctrine beyond the product liability context or beyond claims for negligence and strict

While Giles interpreted Nevada law, the Court highlighted the similarity of Nevada law to California law. See Giles, at p. 877 [The leading Nevada case on the economic loss doctrine is Calloway v. City of Reno, 116 Nev. 250, 993 P.2d 1259 (Nev. 2000). Calloway is conceptually similar to Seely, the paradigmatic product liability case decided by the California Supreme Court thirty-five years earlier.]
4

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liability. [citations omitted] Giles, at pp. 874-877, emphasis added. Thus, this Court explained that Most courts that have applied the economic loss doctrine beyond product liability cases have done so to bar recovery of economic loss in negligence and strict liability. [citations omitted] Id. The Court noted that while some courts have applied the economic loss doctrine to bar recovery on tort claims beyond negligence and strict liability, they have usually amounted to nothing more than a failure to perform a promise contained in a contract. Id. Giles accordingly makes clear that the economic loss analysis does not focus solely on the harm alleged by reason of the tortious conduct, but rather whether the tortious conduct involves nothing more than a breach of the contractual obligations. Once it is established that the tort is outside of the contract, the analysis ends and the economic loss doctrine does not apply. Accord County of Santa Clara v. Atlantic Richfield Co. 137 Cal.App.4th 292, 328-329 (2006) [the first prong of the analysis is whether the tortuous conduct arose from a duty independent of the contract]. Therefore, as summarized by Giles, the economic loss rule does not bar recovery in tort where the Defendant had a duty imposed by law rather than by contract and where the Defendants intentional breach of that duty caused purely monetary harm to the plaintiff. Giles, at p. 879 fn. 5. As now explained, when
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these principles are applied here, it is evident that Defendants fall short of undermining the judgment under the economic loss rule.

B.

The District Court Properly Rejected Defendants Contention That The Economic Loss Rule Applied To Bar Hannibal From Recovering In Tort. (i.) As Aptly Concluded By The District Court, Defendants Fraudulent Conduct Was Extraneous To The Contract And Thus Not Barred By The Economic Loss Rule.

As is clear from its order denying Defendants Rule 50(b) motion, the District Court analyzed whether Defendants fraudulent conduct inducing Hannibal to enter into the contract constituted conduct violating an independent duty outside of the contract. The District Court properly concluded that Defendants fraudulent conduct was extraneous to the contract and thus not barred by the economic loss rule. Defendants argue that [b]ecause courts are required to analyze each Plaintiffs tort claim on its own terms, the district court misapplied California law when it failed to analyze whether Sonja Productions or Ms. Tremonts allegedly tortuous conduct violated a tort duty independent of the contract. (AOB25.) Defendants position is puzzling as the District Court did precisely that. (ER:12-13.) The District Court noted that the testimony and evidence presented at
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trial supported the jurys finding that Ms. Morgan and Sonja Productions, LLC committed fraud and made material misrepresentations inducing Hannibal to enter the contract. (ER:12-13.) In fact, the District Court thoroughly detailed the misconduct of Defendants giving rise to tort liability. (ER:12-13.) The District Court explained that Hannibal based its tort claims on, inter alia: (1) Mrs Morgan personally reviewed and approved the language on Sonja Production, LLCs website, which stated: Sonja Productions established August 2005, has cash funding to invest in 2006/2007 in 5 motion pictures in the range of USD $20,000,000 to $50,000,000 for each film. (SER:19); (2) Richard Rionda testified that he read the website and understood that Sonja Productions LLC was extremely well capitalized ...[and] [i]t has cash available immediately for five motion pictures (6/10RT: 29); (3) Richard Rionda testified that Sonja Productions, LLCs website stated that John Adams Morgan was the vice president in charge of financing and banking and Sonja Productions, LLC shared an office with Mr. Morgans company (6/9RT:150; SER:1-22); (4) Donald Barton, Plaintiffs attorney, testified that he was told at a meeting with Ms. Morgan that she had 50 million [dollars] allocated
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for the production of movies (6/9RT:104); (5) Richard Rionda testified that Donald Barton told him that Ms. Morgan had unlimited funding available...[a]nd that she had case, $50 million. (6/10RT:25); (6) Richard Rionda testified that at a November 9, 2005 meeting with Ms. Morgan, she stated that she had $50 million on [sic] the bank account at City National Bank in Beverly Hills...and she wanted to could [sic] produce the film and finance the film and also stated that money was never an issue; that she had immediate cash available; that it would be available in 48 hours (6/10RT:32-34); and (7) Silvio Sardi, managing director of Sonja Productions, LLC, testified [w]hen we were with [Plaintiff], obviously we would not bring out the situation that we dont have the money because we cannot say to him we sign the deal and we dont have the money (6/11RT:56-57). These fraudulent representations were not simply reiterations of the obligations in the contract but rather affirmative misrepresentations intended to deceive Hannibal. Where, as here, a party engaged in fraudulent conduct, the Plaintiff is not limited to suing on the contract. California law is clear: An action for promissory fraud may lie where a defendant fraudulently induces the plaintiff to
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enter into a contract. Lazar v. Superior Court, 12 Cal.4th 631, 638 (1996); see also StreamCast Networks, Inc. v. IBIS LLC, No. CV 05-04239, 2006 WL 5720345, at *10 (C.D. Cal. May 2, 2006) (One circumstance in which courts have routinely recognized the availability of both a fraud and a contract action is a case in which a party contends that it was fraudulently induced to enter into a contract.) In Lazar, the California Supreme Court addressed the defendants argument that tort and contract remedies should be kept separate, and held that fraudulent inducement of contract-as the very phrase suggests-is not a context where the traditional separation of tort and contract law obtains. Lazar, 12 Cal.4th at 645 (internal citation and quotation marks omitted). [P]laintiffs claim [for fraudulent inducement] does not depend upon whether the defendants promise is ultimately enforceable as a contract. Id. at p. 638. Other California cases have made this abundantly clear. Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal.4th 979, 992 (2004) (Simply put, a contract is not a license allowing one party to cheat or defraud the other.); Erlich v. Menezes, 21 Cal.4th 543, 551-552 (1999) (Tort damages have been permitted in contract cases where ... the contract was fraudulently induced.) (citing Las Palmas Assocs. v. Las Palmas Center Assocs., 235 Cal.App.3d 1220, 1238-39 (1991); Walker v. Signal Cos., Inc., 84 Cal.App.3d 982, 996 (1978) ([Punitive damages] may, however, [b]e awarded where a defendant fraudulently induces the plaintiff to enter into a contract.).
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Thus, contrary to Defendants characterization, the fraud claims were not duplicative of the breach of contract claim. Here, the fraud claims relate to misrepresentations in connection with entering into the contract, and not simply misrepresentations relating to the performance of the contracts terms. Defendants position that Hannibal cannot recover under principles of tort law simply because the fraudulent conduct was successful in inducing a signed contract between the parties is ludicrous. Such a position is at odds with California law recognizing the availability of both fraud and contract actions where a plaintiff contends it was fraudulently induced to enter into a contract. As explained in Las Palmas, no public policy is served by permitting a party who never intended to fulfill his obligations to fraudulently induce another to enter into an agreement. Las Palmas, supra, 235 Cal.App.3d at p. 1238; see also Lazar, 12 Cal.4th at p. 646 (Because of the extra measure of blameworthiness inhering in fraud, and because in fraud cases we are not concerned about the need for predictability about the cost of contractual relationships . . . , fraud plaintiffs may recover out-of-pocket damages in addition to benefit-of-the-bargain damages.) California courts have weighed the risk of allowing claims for fraudulent inducement in a breach of contract action, and determined that the goal of certainty in commercial settings is not served by immunizing tortfeasors from the consequences of their intentional acts. Las Palmas, supra, 235 Cal.App.3d at pp.
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1238-39 (Recognizing the adverse effect fraud has on commercial transactions, the law permits a defrauded party to seek punishment of the wrongdoer through the imposition of punitive damages.) To accept Defendants argument is to accept that, as long as a tortfeasor convinces its victim to enter into a contract, liability is limited to contract damages. But nothing in the cases cited by Defendants supports this outcome. Defendants repeatedly mischaracterize the many authorities refusing to apply the economic loss rule to bar recovery for intentional torts concerning conduct outside of the contract, as applying some categorical exception for fraud claims. (AOB24-28 [specifically the cases cited by Defendants in footnote 3, p. 27].) Defendants fail to appreciate that instead of blindly applying a categorical exception to fraud or fraudulent inducement claims, the cases cited are in fact applying the law and determining that the intentional torts claims are not mere restatements of breaches of the contract. See Krzyzanowsky v. Orkin Exterminating Co., Ins., No. C 07-05362 SBA, 2009 U.S. Dist. LEXIS 14332 , *31-34 (N.D. Cal. Feb. 24, 2009) [summary judgment denied: while the plaintiff did not plead fraudulent inducement, the court noted that questions of fact existed as to whether the defendant fraudulently induced the plaintiff to enter into the contract and thus whether the defendant breached a duty outside of his contractual obligations]; W. Emulsions, Inc. v. BASF Corp., No. 05-CV-5246 CBM(SSx), 2007 U.S. Dist. LEXIS 4837663 (C.D. Cal. Jan. 17, 2007) [court notes that
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pursuant to Robinson, supra, the economic loss rule does not bar [plaintiffs] fraud and intentional misrepresentation claims because they were independent of [Defendants] breach of contract.]; Lincoln Gen. Ins. Co. v. Access Claims Admin., Inc., 2007 U.S. Dist. LEXIS 67172, 2007 WL 2492436 (E.D. Cal. Aug. 29, 2007) [The district court distinguished between tort claims based on whether they merely reiterate a breach of contract or whether there is an independent duty that the Defendant has breached, and if the latter the rule does not bar the claim]. Thus, these authorities confirm that the analysis of whether tort recovery is barred by the economic loss rule is dependent upon whether the fraudulent conduct merely echoes a breach of contract or failure to perform an obligation of the contract, or whether the fraudulent conduct concerns a duty imposed on the defendant by law. In determining whether the economic loss rule applies, the inquiry is whether the contracting partys alleged conduct falls within the scope of the contractual relationship, or whether there were separate, affirmative misrepresentations that the other party justifiably relied on to its detriment. Robinson, at p. 990 (citing Lazar, supra, 12 Cal.4th 631, 638). Defendants fail to present any argument or evidence that the District Courts findings as to the sufficiency of the evidence supporting the jurys finding of fraud and misrepresentations outside of the contract was in error. Rather, Defendants argue that the fraudulent claims must be interconnected with the breach of contract claims and thus barred by the economic loss doctrine simply because the damages
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alleged for the fraud claims are similar to those for breach of contract. This however is not the law.

(ii.)

Contrary To Defendants Position, The Economic Loss Rule Does Not Bar Tort Recovery In Every Case Where Only Economic Damage Occur.

Defendants argue that the fraud and misrepresentation claims cannot be independent of the contract claims simply because the damages arising from such fraudulent conduct may be the same as those available in the breach of contract claim. (AOB20-36.) Defendants claim the damages awarded for Defendants fraud is the same as the damages awarded for Defendants breach of contract. (AOB20-21, 32.) Defendants cite only their own motions as support for this proposition. (AOB30-31 [relying on Ms. Morgans Motion for Judgment].) To the contrary, the record reflects that Hannibal suffered damage beyond the lost profits under the terms of the parties contract. As Mr. Rionda testified, Hannibal was blacklisted and unable to make a film for several years, and Mr. Mortorff explained that in addition to the profits lost as a result of Morgans fraud, Hannibals reputation, credibility and future business were also severely damaged. (6/10RT:138, 6/17RT:138, 130-161.) In any event, in Robinson the Supreme Court expressly rejected the proposition that the economic loss rule bars tort recovery in every case where only
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economic damage occurs. Robinson, at p. 991 fn. 7. Similar to Defendants here, the dissent in Robinson argued that because the damage caused by the alleged tortuous conduct was purely economic, and thus available under the breach of contract claims, the economic loss rule precluded tort recovery. Just as Defendants argue, the dissent explained: Robinsons damages consisted exclusively of the costs associated with identifying and replacing the defective product, costs that fall squarely within the definition of economic loss. (See Jimenez v. Superior Court, supra, 29 Cal.4th at p. 482, 127 Cal.Rptr.2d 614, 58 P.3d 450.) Because Robinson suffered only economic loss, its recovery should have been limited to contract damages under its breach of contract and breach of warranty claims. This application of the economic loss rule solves the problem of how to sanction deceit without chilling commercial relationships. It allows tort liability in those instances where a misrepresentation may have led to actual property damage or personal injury and, in doing so, both sanctions and deters opprobrious conduct. But by excluding tort recovery in those cases, like this one, where the only damages are economic, it preserves the valuable distinction between tort and contract remedies and avoids the problems that would arise if every routine breach were susceptible to both tort and contract claims.
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Robinson, dissent, at p. 997-998 (see also Jimenez v. Superior Court 29 Cal.4th 473, 482 (2002) defining economic loss as including: damages for inadequate value, costs of repair and replacement of the defective product or consequent loss of profits-without any claim of personal injury or damages to other property). Rejecting the dissents assertion, the Robinson majority explained that there cannot be a bright line rule barring tort recovery in every case where the tort damages are purely economic. Robinson, at p. 991 fn. 7. The Court stressed that the economic loss rule was developed in the context of product liability claims and extended to negligent breach of contract claims. Ibid. Dealing with affirmative acts of fraud and misrepresentation raises different policy concerns than those raised by negligence or strict liability claims. Ibid. (emphasis added). As echoed above, these policy concerns ensure that a partys fraudulent conduct will not go unpunished simply because of the existence of a contract. See Las Palmas, supra, 235 Cal.App.3d at p. 1238 (no public policy is served by permitting a party who never intended to fulfill his obligations to fraudulently induce another to enter into an agreement.); see also Lazar, 12 Cal.4th at p. 646. Thus, in Mirzai v. Matossian, 2004 Cal.App. Unpub. LEXIS 9107, 72-75 (Cal.App.1st Dist. Oct. 8, 2004), the court rejected the defendants argument that the economic loss rule precludes tort damages for plaintiffs claims of intentional misrepresentation and trespass since the breach resulted neither in bodily injury nor property damage, but only economic loss. In reaching this
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conclusion the Court cited e.g. the following cases, Jimenez v. Superior Court 29 Cal.4th 473, 482 (2002) [recovery under the doctrine of strict liability is limited solely to physical harm to person or property ]; Aas v. Superior Court, supra, 24 Cal.4th 627 [homeowners may not recover damages in negligence for construction defects that have not caused property damages]; Erlich, supra, 21 Cal.4th at pp. 552-554 [emotional distress damages not recoverable for the negligent breach of a contract to construct a house where contractors negligence directly caused only economic injury]; Sacramento Regional Transit Dist. v. Grumman Flxible 158 Cal.App.3d 289, 293 (1984) [where damage consists solely of economic losses, recovery on a theory of products liability is precluded]; Zamora v. Shell Oil Co. 55 Cal.App.4th 204, 208-213 (1997) [economic loss rule precluded homeowners from recovering in negligence or strict liability for defective pipes used in the construction of the plumbing systems in their homes where the pipes did not leak or otherwise fail]; S.M. Wilson & Co. v. Smith Internat., Inc. 587 F.2d 1363, 1376 (1978) [buyer could not recover against seller on negligence cause of action for the failure of a tunnel drilling machine to perform as expected]. Cited at Mirzai, at pp. *73-74; see also Frank E. Maddocks, Inc. v. University Medical Products/USA, Inc. L 2002396, 2 -3 (Cal.App. 2 Dist., 2005) [California Appellate Court held the economic loss rule inapplicable to plaintiffs fraud and intentional misrepresentation claims, despite the fact that the damages awarded on the fraud claims was equal to those awarded on the breach of contract, as the fraud claims
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did not arise out of the purchase of a defective product and because such claims are independent of the terms of the contract itself.] Defendants reliance on Astrium, S.A.S. v. TRW, Inc. 254 F.Supp.2d 1129 (C.D. Cal. 2003) to support its position that where the Plaintiff suffered only contract-based damages as a result of the tortious conduct, the economic loss rule applies to bar tort recovery is not persuasive. In Astrium the Court expressly concluded that the alleged tortious conduct involved only breaches of the contract. Essentially, Astriums fraud claims relate to how Defendants breached their contractual duties toward Astrium. Astrium, at p. 1136. Thus, the Court properly held that because the allegations of fraud concerned mere breaches of the contract, the economic loss rule applied. Defendants emphasis on the Astrium courts discussion of the lack of extra-contractual harm suffered by the Plaintiff to suggest that the analysis of whether the tort claim is barred by the economic loss rule depends upon whether the damages are the same as those for the breach of contract is simply erroneous. (See AOB27-28.) Astrium does not support such a blanket proposition. In H.B. Filmes, LTDA v. CBS, Inc., 98 Fed. Appx. 596, 599 (9th Cir. Cal. 2004), this Court explained the narrowness of Astrium: CBS contends that H.B.s fraud theory concerns an alleged fraud in the performance of a contract, which, CBS says, is not actionable under California law. However, the case on which CBS relies for this
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proposition, Astrium v. TRW, 254 F. Supp. 2d 1129 (C.D. Cal. 2003) has a far more limited holding. In Astrium, the District Court was bound by a state court holding that in actions arising from the sale or purchase of a defective product, a plaintiff seeking to recover in tort rather than in contract must be able to demonstrate that its economic losses were accompanied by either (1) physical damage or (2) bodily injury. Id. at 1135-36 at 1135-36. The case at hand does not arise from the sale or purchase of a defective product, but instead from the alleged misrepresentation of revenues. It is thus factually more similar to Roddenberry v. Roddenberry, in which the Plaintiff, Mrs. Roddenberry, was advised by letter that she was receiving the full percentage of profits to which she was entitled pursuant to a divorce settlement agreement, although she was in reality receiving a lesser share. 44 Cal. App. 4th at 665. The California Court of Appeals held that, at trial, Mrs. Roddenberry had been able to satisfy every element of fraud, including duty of disclosure. Id. at 666. We conclude from this holding that H.B. likewise may be able to show that CBS had a duty of disclosure, and we reverse the grant of summary judgment as to CBSs fraud claim. Here, just as in H.B. Filmes, this is not a product liability case. The harm caused by the tortious conduct therefore is not dispositive of whether the economic loss
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rule applies. Thus, contrary to the representations of Defendants, the economic loss doctrine is not a blanket bar to the recovery of tort damages for economic losses. Rather, recovery is barred when the claim alleged only economic damages resulting from an alleged breach of contract. Here, as properly concluded by the District Court, based on the evidence presented at trial, the fraud and misrepresentations were not mere breaches of the contract but rather separate independent tort breaches.

III.

IN ANY EVENT, SONJA MORGAN WAS NOT A PARTY TO THE CONTRACT, AND THUS CANNOT RELY UPON THE ECONOMIC LOSS RULE AS A SHIELD FROM TORT LIABILITY Sonja Morgan, individually, was not a party to the contract. As such, she

was not and could not be sued individually for breach of contract. See Reynolds v. Bement 36 Cal.4th 1075, 1087 (2005) [It is well established that a corporate officer is not personally liable for the corporations breach of contract based solely on his or her official position.] That said, an officer or director may be sued individually for their tortious conduct (see Frances T. v. Village Green Owners Assn. 42 Cal. 3d 490, 503-504 (1986) [Officer and directors are liable to third persons injured by their own tortious conduct regardless of whether they acted on behalf of the corporation and regardless of whether the corporation is also liable]),
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which is precisely what occurred in this case. Ms. Morgan was sued in her individual capacity for her tortious misconduct. Nowhere in the Opening Brief do Defendants challenge the sufficiency of the evidence against Ms. Morgan, individually, for her fraud and misrepresentations. Rather, Defendants seek to shield Ms. Morgan from any personal liability for the jurys verdict under the guise of the economic loss rule. However, because Ms. Morgan is not a party to the contract, the economic loss rule cannot apply to bar Hannibals tort claims against her. In the absence of contractual privity, the economic loss rule does not apply. (See Simpkins v. S. Wine & Spirits of Am., Inc., 2010 U.S. Dist. LEXIS 91971 (N.D. Cal. Aug. 9, 2010); see also Luiginos Intl, Inc. v. Miller, 311 Fed. Appx. 289, 294-295 (11th Cir. Ga. 2009) [the economic loss rule is only applicable to situations where the parties are either in contractual privity or the defendant is a manufacturer or distributor of a product, and no established exception to the application of the rule applies.]; Advisors Capital Investments Inc., v. Cumberland Cas. & Sur. Co., No. 8:05-CV-404-T-23MAP, 2007 U.S. Dist. LEXIS 5865, 2007 WL 220189, at *2 n.5 (M.D. Fla. Jan. 26, 2007) [economic loss rule does not bar claims of fraudulent inducement and negligent misrepresentation because Plaintiffs and defendants were not in contractual privity]; McLeod v. Barber, 764 So. 2d 790, 792 (Fla. App. 2000) [[T]he law is clear that the economic loss doctrine does not apply to tort claims where there is no contractual
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relationship between the parties.]; Williams v. Bear Stearns & Co., 725 So. 2d 397, 399 (Fla. App. 1998) [economic loss rule does not apply to tort claims of negligent misrepresentation and breach of fiduciary duty against three defendants who had no contractual relationship with the complaining party]. Here, as there was no privity between Hannibal and Sonja Morgan, individually, the economic loss rule does not apply to preclude Hannibals fraud claims against Ms. Morgan. Such a result not only comports with the law but also sound public policy. It is simply unconscionable that a tortfeasor such as Ms. Morgan should be shielded from liability under the economic loss rule, when she is not personally liable for the breach of contract claims. As noted by the California Supreme Court, the legal fiction of the corporation as an independent entity was never intended to insulate officers and directors from liability for their own tortious conduct. Frances T., supra, 42 Cal. 3d at pp. 507-508; Michaelis v. Benavides, 61 Cal.App.4th 681, 688 (1998). Accordingly, even if the Court were to conclude that the economic loss rule undermines the fraud judgment against Sonja Productions, the fraud judgment against Ms. Morgan individually must still be affirmed.5

Furthermore, it should be noted that pursuant to Ms. Morgans Rule 50(b) Motion, the District Court found that there was no alter ego and thus that Ms. Morgan could not be personally liable for the breach of contract. Ms. Morgan should not be entitled to escape liability on the contract because the corporation has a separate identity from her, but at the same time argue that she is entitled to the benefit of the economic loss rule which arises from the very existence of a
5

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IV.

AS CONCLUDED BY THE DISTRICT COURT, SUBSTANTIAL EVIDENCE SUPPORTS THE DAMAGES AWARD AND THUS NEITHER A REMITTITUR NOR A NEW TRIAL IS WARRANTED

Defendants second challenge on appeal concerns the sufficiency of the evidence supporting the jurys award of damages. As explained above, Defendants position that the judgment must be reversed because the District Court erred in denying the motion for JNOV is forfeited. Defendants alternative request that this Court reverse the District Courts denial of the motion for new trial and force Plaintiff to accept a remittitur, or submit to a new trial, is meritless.6 Defendants argue that the judgment must be reversed because the jury improperly allowed Plaintiff to recover $6.5 million in lost profits. (AOB37-55.) Defendants introduce their argument by criticizing Plaintiffs evidence of lost profits as purely hypothetical (ignoring Defendants fraud made it so); erroneously claiming (without authority) Defendants were entitled to a presumption that the film would have generated no profit; and arguing that the

contractual relationship. It should be noted that this Court has the discretion to deem the issue of sufficiency of the evidence procedurally barred, even if construed as part of Defendants Rule 59 motion, as a Rule 59 motion may not be used to raise arguments for the first time when they could reasonably have been raised earlier in the litigation. See Carroll v. Nakatani, 342 F.3d 934, 945 (9th Cir.2003) (citing Kona Enters., Inc. v. Estate of Bishop, 229 F.3d 877, 890 (9th Cir. 2000)).
6

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jury awarded lost profits damages on the unsubstantiated assumptions that the film would have been completed, much less successful (again ignoring that on appeal, the evidence is viewed in the light most favorable to Plaintiff). All of Defendants arguments are legally and factually flawed. The District Court properly rejected Defendant Sonja Morgans arguments in her Rule 59(a) Motion for New Trial and Remittitur that the damages awarded to Plaintiff against Defendants were not recoverable under the specious theory that Fast Flash was an unestablished business and could not recover lost profits. (CD:200.) The District Court explained, Based on the evidence presented, it is reasonable to conclude that Fast Flash to Bang Time would have been made but/for Defendants actions given that Plaintiff had, among others, a commitment from the Royal Bank of Scotland to finance the entire production, secured an acting commitment from John Travolta, made approximately $6.7 million in foreign presales, and arranged a filming start date. Moreover, the Court finds that Larry Mortoff was a credible witness and possessed the necessary skills, based on his background, to adequately estimate the films projected revenue and, accordingly, calculate the amount of loss suffered by the Plaintiff as a direct result of Defendants actions. . . . The facts and testimony presented at trial established a reasonable basis for the jurys damages award and the Court will not intervene because Defendant, without a suitable legal basis, simply
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disagrees with jurys conclusions. (ER3-4 (emphasis added).) As Defendants have patently failed to meet their substantial burden of demonstrating that the District Court abused its discretion, no new trial is warranted and the District Courts order should be affirmed.

A.

Defendants Misrepresent The Applicable Standard Of Review.

In arguing that the District Court erred in denying Defendants motion for new trial on the issue of excessive damages, Defendants misstate the applicable standard of review, contending among other things that the trial evidence failed to establish as a matter of law that the film would have been completed or generated revenue (AOB40), the overwhelming evidence at trial established that Hannibal Pictures would not have made money from Fast Flash (AOB41), Hannibal Pictures could not as a matter of law demonstrate with reasonable certainty that it would have received any of the compensation that it claimed to have lost (AOB47), and Mr. Mortorffs methodology is insufficient for three reasons to project with sufficient certainty the occurrence or amount of lost profits (AOB50). As this Court made clear: We review the district courts ruling on a motion for a new trial under Rule 59(a) for an abuse of discretion. McEuin v. Crown Equip. Corp., 328 F.3d 1028, 1032 (9th Cir. 2003).
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A district courts denial of a motion for new trial will not be overturned absent a clear abuse of discretion i.e., only where there is an absolute absence of evidence to support the jury's verdict. Desrosiers v. Flight Int'l of Florida Inc., 156 F.3d 952, 957 (9th Cir. 1998) (emphasis added); see Hangarter v. Provident Life & Acc. Ins. Co., 373 F3d 998, 1005 (9th Cir. 2004); City Solutions, Inc. v. Clear Channel Communications, Inc., 365 F3d 835, 843 (9th Cir. 2004). Therefore, contrary to Defendants arguments, this Courts review is limited to whether there is any evidence in support of the jurys damage award. As now detailed, and as the District Court explicitly found, there is abundant evidence in support of the jurys damages award.

B.

Hannibal Proved With Reasonable Certainty That The Film Would Have Been Completed And Generated Net Profits Shown By Expert Testimony.

Defendants agree that Plaintiff was required only to present evidence sufficient to allow a reasonable trier of fact to find with reasonable certainty lost net profits from the alleged misconduct by Defendants. Kids Universe v. In2Labs, 95 Cal.App.4th 870, 887 (2002); see also Parlour Enterprises, Inc. v. The Kirin Group, Inc., 152 Cal.App.4th 281, 289 (2007); Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co. 47 Cal.App.4th 464, 489-490 (1996) [As to the reasonableness of the assumptions underlying the experts lost profit analysis,
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criticisms of an experts method of calculation is a matter for the jurys consideration in weighing that evidence.] Nevertheless, Defendants challenge the amount of the jurys damages award of lost profits with several arguments, all of which are meritless. Defendants first argue, without any authority, that California law presumes that a Plaintiff cannot recover lost compensation that might have been received from an unestablished business venture. (AOB38-40.) This contention is both factually and legally erroneous. First, there is considerable evidence to support the fact that Hannibal was an established business. Hannibal was founded in 1999, and finances, produces and distributes three (3) to six (6) motion pictures per year with budgets ranging from three to twenty million dollars ($3,000,000-$20,000,000). (6/11RT:149-151.) Hannibal was involved in several other productions during the pre-production of Fast Flash. (6/10RT:51.) Moreover, the attempt by Defendants to analyze Fast Flash as an unestablished business venture is improper and illogical. In fact, if Defendants argument is taken to its logical conclusion, any movie that is not a sequel, a spin-off, or part of a movie franchise, would be an embryonic venture. Clearly, the relevant analysis does not examine the movie itself, but rather the producers behind it. Second, none of the cases cited by Defendants, nor any other case of which
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Plaintiff is aware, holds that there is any such presumption against recovery of lost profits. To the contrary, whether or not the business venture is established, California law permits the plaintiffs ability to recover lost profits. Indeed, the very cases that are cited by Defendants make it clear that recovery for lost profits is permissible even where a business is unestablished: On the other hand, lost anticipated profits for an unestablished business whose operation is prevented or interrupted are generally not recoverable because their occurrence is uncertain, contingent and speculative. Nevertheless, they may be recovered where the evidence makes reasonably certain their occurrence and extent. [Citations.] Parlour Enterprises, Inc. v. Kirin Group, Inc., 152 Cal.App.4th 281, 287-288 (2007) citing Kids Universe v. In2Labs, 95 Cal.App.4th 870, 883 (2002). Thus, even assuming arguendo that the relevant analysis was for an unestablished business, Plaintiff established the damages in the form of lost profits with reasonable certainty. Moreover, expert testimony alone is a sufficient basis for an award of lost profits in the new business context when the expert opinion is supported by tangible evidence with a substantial and sufficient factual basis rather than by mere speculation and hypothetical situations. Parlour Enterprises, Inc. v. Kirin Group, Inc., 152 Cal.App.4th 281, 287-288 (2007) (internal citations omitted) (emphasis supplied). Defendants second argument is equally meritless. Defendants contend that the trial evidence failed to establish as a matter of law that the film would have
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been completed or generated revenue. (AOB40-47.) At the outset, Defendants misstate the appropriate standard of review. Plaintiff is not required to establish as a matter of law that the evidence below demonstrated that the film would have been made. On appeal, viewing the evidence in the light most favorable to the jurys verdict, the only question is whether there is any evidence to support the jurys conclusion that the film would have been completed and generated revenue. Not only is there any evidence in the record to support the jurys conclusion, there is abundant evidence. Plaintiff had a letter of commitment from the Royal Bank of Scotland to fully finance the film. (6/16RT:68-71,120.) Hannibal took several steps in pre-production, including budgets, schedules, casting major stars such as Rosario Dawson and John Travolta and location scouting. Plaintiff had also secured foreign pre-sales for over six million dollars for Fast Flash before and after Sonja Productions became involved. (SER:125-143.) As noted above, there was abundant evidence presented that Hannibal, which specializes in international co-productions of motion pictures, financed, produced and distributed three to six films per year with budgets ranging from three to twenty million dollars. (6/9RT:149-151.) This evidence fully demonstrated there has been operating experience sufficient to permit a reasonable estimate of probable income and expense. Maggio, Inc. v. UFW, 227 Cal.App.3d 847, 870 (1991) (quoting Natural Soda Prod. Co. v. City of Los Angeles, 23 Ca1.2d 193, 199 (1943); see Grupe v. Glick, 26 Ca1.2d 680, 693 (1945) (anticipated profits dependent upon
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future events are allowed where their nature and occurrence can be shown by evidence of reasonable reliability). Defendants argument that it is mere speculation whether Fast Flash would have been made is belied by Hannibals long experience and expertise in the movie business. The defendant in Maggio, Inc. v. UFW, made a similar argument contending that by virtue of simply entering into a new contract, a business which had been in operation for years should be recognized as a new business. Maggio, Inc. v. UFW, 227 Cal.App.3d at 870. The Court rejected that argument outright and found this logic to be without merit. Id. Equally and comparably compelling, Hannibals experience in the independent movie production field does not make its production of the movie Fast Flash to Bang Time a new and unestablished business venture. Much like the business in Maggio, Inc. v. UFW, Hannibal has a demonstrated track record in producing motion pictures for numerous years. (6/9RT:149-151.) Given Hannibals extensive background and experience in the motion picture business, coupled with the evidence that Royal Bank of Scotland had committed to finance the production and John Travolta and his desired co-star Rosario Dawson had agreed to star in the film, there is ample evidence to support the jurys conclusion that it is reasonably certain Fast Flash would have been completed and distributed. Defendants third argument is that Hannibal Pictures failed to rebut the presumption that Fast Flash would not have generated revenues and at most, the
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trial evidence supports a damages award of $212,094. (AOB47-52.) This argument too is meritless. First, as discussed above, there is no such presumption, so Defendants improperly frame the issue on appeal. To the contrary, given the appropriate standard of review, it is presumed there is evidence supporting the jurys conclusion that the film would have generated revenues. Humetrix, Inc. v. Gemplus S.C.A., 268 F.3d 910, 921 (9th Cir. 2001). Second, as detailed above, the abundant evidence at trial supporting the judgment, including the expert testimony from Mr. Mortorff, established the reasonable certainty that Fast Flash would have generated the revenues awarded by the jury and further that because of the collapse of the film, Hannibal was blacklisted and unable to make a film for several years. (6/10RT:138, 6/17RT:130-161.) Defendants did not present an alternate theory of damages, nor did they present any rebuttal by way of expert witnesses. In short, Hannibal amply demonstrated that more than a reasonable probability existed that Fast Flash would have been made and resulted in a profit, but for Defendants tortious conduct. For all the reasons discussed above, the District Court acted well within its discretion in denying Defendants post-trial motions based on the abundant evidence at trial, the applicable legal authority governing the recovery of lost profits, and the appropriate standard of review on appeal.

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CONCLUSION For the foregoing reasons, the judgment should be affirmed in full.

Dated: October 29, 2010

Respectfully submitted, HAMRICK & EVANS, LLP ESNER, CHANG & BOYER

By: s/

Stuart B. Esner

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STATEMENT OF NO RELATED CASES

There are no known related cases pending in the Ninth Circuit.

s/

Stuart B. Esner

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CERTIFICATE OF COMPLIANCE WITH RULE 32(a)

Pursuant to Rule 32(a)(7)(b)(I) of the F.R.A.P., I hereby certify that the foregoing brief contains 13,101 words, excluding the parts of the brief exempted by Fed.R.App.P. 32(a)(7)(B)(iii). This brief complies with the typeface requirements of Fed.R.App.P. 32(a)(5) and the type style requirements of Fed.R.App.P. 32(a)(6) because it has been prepared in a proportionally spaced typeface using WordPerfect in 14-point Times New Roman font.

S/

Stuart B. Esner

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ADDENDUM

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ADDENDUM OF PERTINENT STATUTES

Federal Rules of Civil Procedure 50 Rule 50.


Judgment as a M atter of L aw in a Jury Trial; Related Motion for a New Trial; Conditional Ruling

(a) Judgment as a Matter of Law. (1) In Gen eral. If a party has been fully heard on an issue during a jury trial and the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue, the court may: (A) (B) resolve the issue against the party; and grant a motion for judgmen t as a matter o f law aga inst the party on a claim or defense that, under the controlling law, can be maintained or defeated only with a favorable finding on that issue. Motion. A motion for judgment as a matter of law may be made at any time before the case is submitted to the jury. The motion must specify the judgment sought and the law and facts that entitle the movant to the judgmen t.

(2)

(b)

Renewing the Motion After Trial; Alterna tive Mo tion for a N ew T rial. If the court does not grant a motion for judgment as a matter of law mad e under R ule 50(a), the court is co nsidered to have sub mitted the ac tion to the jury subject to the courts later deciding the legal questions raised by the motion. No later than 28 days after the entry of judgmentor if the motion addresses a jury issue not decided by a verdict, no later than 28 days after the jury was dischargedthe movant may file a renewed motion for judgment as a matter of law and may include an alternative or joint request for a new trial under Rule 59. In ruling on the renew ed m otion, the court ma y: (1) allow judg ment on th e verdict, if the jury returned a v erdict; (2) order a new trial; or (3) direct the entry of judgment as a matter of law. Granting the Renewed Motion; Conditional Ruling on a Motion for a New Trial. (1) In Genera l. If the court grants a renewed motion for judgment as a matter of law, it must also conditionally rule on any motion for a new trial by

(c)

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(d)

(e)

determining whether a new trial sh ould be granted if the judgment is later vacated or reversed. The court m ust state the gro unds for c onditionally granting or denying the m otion for a n ew trial. (2) Effect of a Conditional Ruling. Conditionally granting the motion for a new trial does not affect the ju dgments finality; if the judgm ent is reversed, the new trial must proceed unless the appellate court orders otherwise. If the motion for a new trial is conditionally denied, the appellee may assert error in that denial; if the judgment is reversed, the case must proceed as the appellate court orders. Time for a Losing Par tys New-Trial Motion. Any motion for a new trial under Rule 59 by a party against whom judgment as a matter of law is rendered must be filed no later th an 28 days a fter the entry of th e judgme nt. Denying the M otion for Judgment as a Matter of Law; Reversal on Appea l. If the court de nies the mo tion for judg ment as a m atter of law , the prevailing party may, as appellee , assert groun ds entitling it to a n ew trial sho uld the appella te court conclude that the trial court erred in denying the motion. If the appellate court reverses the judgment, it may order a new trial, direct the trial co urt to determine whether a new trail should be granted, or direct the entry of judgmen t.

Federal Rules of Civil Procedure 59 Rule 59.


(a) New Trial; Altering or Amending a Judgment

(b) (c)

In Gen eral. (1) Grounds for New T rial. The court may, on motion, grant a new trial on all or some of the issuesand to any partyas follows: (A) after a jury trial, for any reason for which a new trial has heretofore been granted in an action at law in federal court; or (B) after a nonjury trial, for any reason for which a rehearing has heretofore been gran ted in a suit in e quity in federal c ourt. (2) Further Action After a Nonjury Trial. After a nonjury trial, the court may, on a motion for a new trial, open the judgment if one has been entered, take additional testimony, amend findings of fact and conclusions of law or make ne w ones, a nd direct the entry of a new judgmen t. Time to File a Motion for New Trial. A motion for new trial must be filed no later than 28 days after the e ntry of judgm ent. Time to Serve Affidavits. When a motion for a new trial is based on affidavits, they must be filed with the motion. The opposing party has 14 days after being served to file opposing affidavits. The court may permit reply affidavits.

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(d)

(e)

New Trial on the Courts Initiative or for Reasons Not in the Motion. No later than 28 days after the entry of judgment, the court, on its own, may order a new trial for any reason that would justify granting one on a partys motion. After giving the parties notice an d an opp ortunity to be he ard, the cou rt may grant a timely motion for a new trial for a reason not stated in the motio n. In either ev ent, the court must specify the reason s in its order. Motion to Alter or Amend a Judgmen t. A motion to alter or amend a judgment must be file d no later tha n 28 days af ter the entry of the judgmen t.

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9th Circuit Case Number(s) U.S.C.A. Docket No. 09-56584 ****************************************************************** CERTIFICATE OF SERVICE When All Case Participants are Registered for the Appellate CM/ECF System I hereby certify that I electronically filed the foregoing with the Clerk of the Court for the United States Court of Appeals for the Ninth Circuit by using the appellate CM/ECF system on (date) _____________________________ I certify that all participants in the case are registered CM/ECF users and that service will be accomplished by the appellate CM/ECF system. Signature (use s/ format) ____________________________ ****************************************************************** CERTIFICATE OF SERVICE When Not All Case Participants are Registered for the Appellate CM/ECF System I hereby certify that I electronically filed the foregoing with the Clerk of the Court for the United States Court of Appeals for the Ninth Circuit by using the appellate CM/ECF system on (date) October 29, 2010 Participants in the case who are registered CM/ECF users will be served by the appellate CM/ECF system. I further certify that some of the participants in the case are not registered CM/ECF users. I have mailed the foregoing document by First Class Mail, postage prepaid, or have dispatched it to a third party commercial carrier for delivery within 3 calendar days to the following non-CM/ECF participants:
David L. Evans HAMRICK & EVANS, LLP 10 Universal Drive, Suite 2200 Universal City, CA 91608

Signature

s/ Vicki R. Butler

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