C.A. denies bid to force arbitration over Hemsley residuals (CA)

A long-running dispute over ownership of residuals earned by actor Sherman Hemsley is not ripe for arbitration, the Court of Appeal for this district has ruled.

Div. One Monday affirmed a lower court ruling denying David Pullman’s motion to compel arbitration of a lawsuit brought by William Little. Little sued Pullman in July 2005, seeking to rescind a contract by which the two men agreed to an equal division of Hemsley’s residuals.

Hemsley, who died last year of cancer at age 74, became a television fixture as George Jefferson, the businessman who was Archie Bunker’s neighbor on All in the Family and its popular spinoff The Jeffersons, which ran for 11 years on CBS. He subsequently starred in another series, Amen, which ran for six seasons, and in Goode Behavior, which ran for one season, and had numerous other film and television roles.

Unable to pay personal loans and tax debts, however, he declared bankruptcy in 2002.

According to an unpublished 2007 opinion of the Bankruptcy Appellate Panel, the trustee transferred rights to some of Hemsley’s residuals in order to settle a dispute with Sony Pictures, then put the remainder up for auction.

Pullman—whose company Structured Asset Sales is better known for its role in using music industry royalty streams to securitize loans—bid $215,000 for the rights, just beating out Little’s $214,000 bid.

Pullman, however, subsequently defaulted, forfeiting his $4,000 deposit. He and Little then joined forces, although they didn’t remain allies very long.

Contract With Trustee

As the BAP explained, Little reached an agreement with the trustee to buy the residuals for $85,000, the trustee being unaware at the time of the agreement between Little and Pullman. Under that arrangement, Pullman supplied half of the $85,000 and was to receive half of the residuals from Little.

Upon learning of their arrangement, the trustee sued both men for entering into a collusive agreement in violation of the Bankruptcy Code. In 2006, while his suit against Pullman was pending, Little settled by paying another $85,000, but the case proceeded against Pullman.

A bankruptcy judge later ruled that Pullman and Little had entered into a collusive agreement, but declined to award compensatory damages because the value of the residuals had not been established, and denied punitive damages on the ground that intent to violate the code had not been proven. The BAP affirmed.

In his suit against Pullman, meanwhile, Little claimed their agreement was illegal. Pullman moved to compel arbitration under a provision in the contract, but that motion was taken off calendar while proceedings were still before the bankruptcy judge.

In September 2006, a month before the bankruptcy judge approved his settlement with the trustee, Little amended his complaint, dropping his challenge to the contract but seeking to dissolve his alleged joint venture with Pullman. In 2007, the two men reached a settlement under which Little would return Pullman’s $42,500 and dismiss his suit in exchange for all of the “right, title and interest in and to the Sherman Hemsley residuals,” although each would keep payments “already received.”

Another Lawsuit

In 2008, however, Little sued Pullman for violation of the settlement agreement and fraud. He claimed that Pullman had interfered with his collection of the residuals by telling the Screen Actors Guild that he was due $10,000 in Hemsley residuals and demanding that SAG not release the money to Little. Pullman allegedly told SAG there was “no settlement whatsoever.”

SAG collects residuals and distributes them to the actor or other person or entity entitled to them, Justice Victoria Chaney explained in Monday’s opinion. When there is a dispute as to that person or entity is, SAG interpleads the funds.

When Little filed the second suit, Pullman again moved to compel arbitration. But Little argued, and the trial judge agreed, that the settlement agreement, which lacked an arbitration clause, had superseded the original agreement.

The Court of Appeal affirmed two years ago in an unpublished opinion.

Six weeks after that appellate ruling, Pullman sent a notice of rescission of the settlement agreement, claiming failure of consideration and fraud in the inducement, and attempting to “tender” a return of the $42,500. But instead of actually sending a check or otherwise delivering payment, Chaney explained, he merely informed Little that he could pick up the check at his “company’s and attorney[’s]” office.

Cross-Complaint File

Pullman then filed a cross-complaint for breach of contract over pre-settlement residual money and for rescission of the settlement agreement, and again moved to compel arbitration, this time on the ground that his rescission of the settlement agreement reinstated the original agreement, along with its arbitration provision. Pullman also claimed that Little had refused his tender.

Chaney, however, agreed with Los Angeles Superior Court Judge Mark Mooney that Pullman is not entitled to arbitration, at least not at this point in the proceedings.

The justice reasoned that there was no rescission and that if there had been a rescission, it would not revive the arbitration clause in the absence of a finding that the rescission was justified. Chaney explained that making a check available for pick-up wasn’t enough, that it was conditional on Little’s acceptance and that Little rejected the check, as he was entitled to do. “Because Pullman failed to restore to Little the $42,500 he had received as part of the Settlement Agreement, his rescission of that agreement was ineffective,” Chaney wrote.

Anticipating that Pullman may attempt to rescind the contract in the future by delivering the money to Little, Chaney said it would be up to the trial judge whether to determine the justification issue in the context of a petition to compel arbitration.

Chaney explained that “if at some point the trial court determines that Pullman completed the rescission and was justified in doing so and is entitled to some relief, it may then determine the merits of other issues raised by the parties but not yet addressed in substance, including whether the Original Agreement includes a valid agreement to arbitrate and whether Pullman has waived the right to seek arbitration.”

Attorneys on appeal were Mitchell Ezer for Little and Lauren M. Greene for Pullman.

The case is Little v. Pullman, B238137.

Attribution:

C.A. Denies Bid to Force Arbitration Over Hemsley Residuals
Kenneth Ofgang
September 11, 2013
Metropolitan News-Enterprise
http://www.metnews.com/articles/2013/litt091113.htm

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