Plaintiffs, Appellants and



        Defendant, Appellant and Respondent


Case No. B 126903

(Los Angeles County Super. Ct. No. BC 135 198)

[FILED, March 26, 2001]

        APPEAL from the judgement of the Superior Court of Los Angeles County. Madeleine I. Flier, Judge. Reversed.

        Greenberg, Glusker, Fields, Claman & Machtinger, Robert S. Chapman, Brian L. Edwards and Stephen S. Smith for Plaintiffs, Appellants and Respondents. Horvitz & Levy, Frederic D. Cohen and Mitchell C. Tilner, Munger, Tolles & Olson, Bradley S. Phillips and Allison B. Stein for Defendant, Appellant and Respondent.

        Warner Bros., Inc. (Warner) appeals from a judgment awarding Coppola et al. $20 million compensatory damages.

        Francis Coppola, Fred Fuchs and Francis Ford Coppola, Inc. (Coppola) appeal from an order granting judgment notwithstanding the verdict (JNOV) as to a jury verdict awarding $60 million punitive damages against Warner; and, from an order granting nonsuit as to Copolla's claim for slander of title.


        In the late 1980's, appellant Coppola began considering concepts for a motion picture based upon the 19th century novel, "Pinocchio." The story itself is in the public domain. Previously, in the 1960's, Coppola had had negative experiences at Warner and had not since worked with Warner for many years.

        In 1991 Coppola and Warner began discussing the "Pinocchio" project and two others involving the life of J. Edgar Hoover and the children's novel "Secret Garden." These discussions led to negotiations for Coppola to both produce and direct the "Pinocchio" project for Warner, as well as "Secret Garden" and "Hoover."

        In mid-1991 Coppola and Warner came to disagreement over the compensation to be paid Copola for his directing services on "Pinocchio." The parties deferred this issue. Copolla was represented in these negotiations by attorney Barry L. Hirsch, who testified:

 "...I said that it was absolutely essential that he (Coppola) get to direct Pinocchio. That was at the beginning of the negotiations ....they (Warner) requested that we defer the discussion about Mr. Coppola directing the movie until such time as the movie was ready to go, a real movie rather than just a development deal... [¶] After some bargaining, we agreed that we would defer the (directing) discussion but that in the event that we could not come to an agreement later on, then he would have the right to go elsewhere to make his Pinocchio, and then they could do whatever they wanted."

        Negotiations continued regarding a producer's agreement. Jim Henson Productions Inc. (Henson) entered the "Pinocchio" project as a co-producer.

        During October and November 1991, Warner contracted with Frank Galati (Galati) and Mauro Borelli (Borelli) for screenwriting and artistic services, respectively, on the "Pinocchio" project. Warner hired Galati before it had a production agreement with Coppola. Copolla brought Borelli into the project. Warner committed to the payment of substantial amounts for the services of Galati and Borelli.

        During the latter part of 1991, Coppola, in conjunction with Warner, Galati and Henson, engaged in a variety of activities in the development of the "Pinocchio" project. Treatments or summaries of these creative efforts were produced and circulated.

        A Warner executive, Daniel Furie (Furie), testified that by November 13, 1991, Coppola, Henson and Warner had agreed upon the material terms of the producer's agreement. Lisa Henson, a former senior creative executive at Warner assigned to the "Pinocchio" project, testified that a producer's agreement had not been accomplished by the time she left Warner at the end of 1992. (After leaving Warner, Lisa Henson became president of production at Columbia.) Furie testified that various terms of a producer's agreement were and would have been discussed with Lisa Henson before the actual producer's agreement was closed. At this point, there was no written agreement signed by the parties.

        An undercover letter dated February 13, 1992, from Warner Deputy General Counsel Mary S. Ledding, sent "...a copy of the proposed agreement relating to the producing services of Francis Coppola and an individual designated by Jim Henson Productions, Inc. in connection with... the "Pinocchio" project. [¶] Also enclosed is a short agreement relating to Mr. Coppola's directing services on the picture. [¶] Since executives here at Warner have not had a chance to review these agreements, I must reserve the right to make changes, additions, etc. ¶Please give me a we can resolve any outstanding issues." (Emphasis added.)

        The aforementioned proposed agreement is referred to by Warner as a "long-form producer agreement." Similar proposed long form producer agreements relating to "Secret Garden" and "Hoover" were submitted. None of them were ever signed by any of the parties.

        In May 1992, Coppola wrote a "Pinocchio" treatment, which was registered with the Writers' Guild. Coppola requested and Warner reimbursed him for the $10 registration fee. Coppola testified that "I wrote that treatment at their (Warner's) request. I certainly-yes, everything I was doing was on their behalf."

        The only employment related document signed by Coppola and Warner was a Certificate of Employment signed in July 1992, but stating "executed as of November 13, 1991." Throughout this document Coppola is referred to as "Employee" and Warner as "Producer." The document specifically refers to the motion picture "Pinocchio," which Warner proposes to produce, and to Coppola as producer or executive producer. This document states, in pertinent part:

"(Coppola) for good and valuable consideration (receipt of which is hereby acknowledged) (does) hereby acknowledge, certify and agree that (i) all of the results and proceeds of the services of every kind heretofore rendered by and hereafter to be rendered by Employee in connection with the Picture, and (ii) all ideas, suggestions, plots, themes, stories, characterizations and other material, whether in writing or not in writing at any time heretofore or hereafter created or contributed by Employee which in any way relate to the Picture or to the material on which the Picture will be based are and shall be deemed works 'made-for-hire' for Producer and/or works assigned to Producer, as applicable. Accordingly, Employer and Employee further acknowledge, certify and agree that Producer is and shall be deemed the author and/or exclusive owner of all the foregoing for all purposes and the exclusive owner throughout the world of all of the rights comprised in the copyright thereof, and of any and all other rights thereto, and that Producer shall have the right to exploit any and all of the foregoing in any and all media, now known or hereafter devised, throughout the universe, in perpetuity, in all languages as Producer determines. Employer (sic) hereby grants to Producer all rights which it may have in and to all of said material as Employee's general employer..."

        Similar certificates of employment were signed for the "Secret Garden" and "Hoover" projects. All certificates of employment were reviewed by Coppola attorneys, Armstrong & Hirsch, with some revisions requested by them, before Coppola signed. Coppola testified he relied entirely on his attorneys in signing legal-type documents, including the Certificate of Employment for "Pinocchio."

        After the Certificates of Employment were signed, Warner paid producer fees to Henson and paid a $3,125 advance on fees plus expenses to Coppola. Warner executive Daniel Furie testified that the signed Certificate of Employment was not sufficient for Warner to pay Coppola's usual producer's fee. The parties acknowledge that Coppola's usual fees for development, production and screenwriting would exceed $1 million.

        In early 1993, Galati submitted his first draft screenplay for the "Pinocchio" film. This screenplay was unacceptable to Warner. Rather than authorizing a rewrite, Warner bought out Galati's contract for $50,000 and terminated his services. Warner decided not to proceed with the "Pinocchio" project on the basis of a Galati screenplay.

        There is evidence that Warner expended approximately $350,000 of its own funds in furtherance of the "Pinocchio" project.

        Coppola continued to work on the development of the "Pinocchio" film project. In mid-1993, Coppola, in collaboration with Borelli, produced a draft screenplay based upon a concept or "take" which was significantly different than the Galati screenplay. He also wrote 14 original songs for potential use in the revised "Pinocchio." The draft screenplay and songs were sent to his partner, Fred Fuchs, as the basis for a film budget, but were never submitted to Warner. Warner was apparently unaware of this new "Pinocchio" treatment until the Coppola-Columbia Pictures relationship surfaced.

        Coppola sought to negotiate a "split rights" or "negative pickup" agreement with Warner for the continued development of "Pinocchio," an arrangement under which Coppola would own, in whole or in part, the project and control its development. Warner was unwilling to enter into such an arrangement. Warner submitted a counterproposal under which Warner would pay Coppola a minimum of an additional $7 million for his services as writer and director in addition to his services as producer. Coppola rejected Warner's counterproposal.

        Warner and Coppola differ radically as to their status vis-a-vis each other and the "Pinocchio" project. Warner's position is that based upon the certificate of employment, the purported oral production agreement and the money paid to Coppola, Warner owns any and all of Coppola's work on any type or nature of "Pinocchio" film in perpetuity. Coppola contends that there was no agreement with Warner; that any agreement with Warner was contingent upon Coppola directing the film; and, that "Pinocchio" is a public domain story which Coppola was free to develop anywhere, at anytime with anyone.

        By letter dated June 30, 1993, addressed to Warner, counsel for Coppola "...advised that our not wish to continue negotiations with respect to the proposed engagement of their connection with the theatrical motion picture project presently known as "Pinocchio" and, accordingly, we are terminating such negotiations on their behalf. [¶] It is our clients' view that no agreement exists with respect to their services in any capacity in connection with that project, including without limit, as producer, executive producer, or director...." This letter returned checks for the fee advance and expenses paid by Warner and demanded return of all "Pinocchio" materials provided by Coppola to Warner.

        By letter dated July 1, 1993, addressed to counsel for Coppola, Warner's General Counsel advised that "The Producer Loanout Agreement between this company and (Coppola) has been and remains in full force and effect. We expect all parties involved to live up to their obligations under that agreement..." The checks tendered by Coppola's counsel's letter of June 30, 1993, were returned.

        Coppola's counsel responded in a letter dated July 7, 1993, that a producer loanout agreement had never been finalized; that a director agreement, which was integral to the overall arrangement, had never been concluded; and, that Coppola was not under any obligation to Warner in connection with "Pinocchio." This letter concluded with the statement that Coppola "...will indulge no interference by Warner Bros. in their development of any production based on that public domain work or with the pursuit of their livelihoods."

        Negotiations continued, including a personal letter dated August 10, 1993, from Coppola to two top level Warner executives, wherein Coppola sought a "split rights" or "negative pickup" arrangement. The parties did not conclude an agreement other than that already extant, if any.

        By cover letter dated September 29, 1993, Coppola's attorney (Armstrong & Hirsch) sent various "Pinocchio" materials, including the Galati screenplay, Coppola's revised screenplay and "our file relating to Mr. Coppola's earlier involvement with Warner Bros." to Jared Jussim (Jussim), Columbia Pictures' Vice-President, Legal Affairs. In early October 1993, Jussim requested and received from Coppola's attorney a copy of the Borelli "Pinocchio" treatment.

        After reviewing the submitted documents and information, Jussim opined that some type of contract or arrangement existed between Warner and Coppola and that Warner had a potential claim of ownership to Coppola's "Pinocchio" work product. Jussim concluded the rights of and any claims by Warner should be resolved before Columbia could proceed with the Coppola "Pinocchio" project. The head of Columbia's legal affairs concurred regarding the necessity of resolving any claims by Warner as a prerequisite to a Columbia deal with Coppola for a "Pinocchio" project. The Columbia-Coppola agreement contained the following clause:

"...[I]t is a condition to the effectiveness of this entire agreement that all claims asserted by Warner Bros. be resolved to the mutual satisfaction of Columbia and Company (Coppola)."

        A Warner executive, Steven Spira (Spira), heard through industry rumor that Coppola and Columbia were discussing a "Pinocchio" film project. Spira sent a letter dated February 17, 1994, to Coppola's agent with a copy to Spira's counterpart at Columbia, which read: "It has come to our attention that [Coppola] may be considering making a deal in connection with a PINOCCHIO project at Columbia. As you know, [Warner] has previously notified [Coppola] that he has an agreement at [Warner] in connection with any such project. Such agreement would preclude him from proceeding at Columbia. And [Warner] hereby reserves any and all rights arising out of such agreement."

        At this point, a brief digression is appropriate. Francis Ford Coppola at all times pertinent herein was (and is) a world-renowned film director, screenwriter and producer. His film credits include the "Godfather" films, "Apocalypse Now," "The Rainmaker," "Patton," "Secret Garden," "Runaway Train," "Peggy Sue Got Married" and many, many more. Coppola has received five Academy Awards, two Director's Guild Awards, first prize at the Cannes Film Festival and the Legion of Honor from the Nation of France. As of 1993, he had recently enjoyed a $200,000,000 worldwide success with "Dracula." Paraphrasing the testimony of international financier, Paul Rassam, Francis Coppola is a filmmaking icon whose very name is "bankable." Obviously, there is substantial value in the rights to any film making work product of Francis Coppola. (Perhaps this explains Warner's disparate approach to a Coppola "Pinocchio" vis-a-vis a Henson "Pinocchio.")

        Coppola and Columbia entered into an agreement "as of June 15, 1994" for the production of Coppola's "Pinocchio." Coppola's signature(s) were notarized on September 1, 1994. This agreement specifically provides for resolution of the Warner claims either by negotiation or by declaratory relief litigation financed by Columbia.

        Warner and Coppola entered into settlement negotiations resulting in drafts of settlement agreements. Spira sent a letter dated September 23, 1994, to Coppola's attorney Barry Hirsch confirming "...the basic terms of the agreement resolving the dispute between (Warner) and (Coppola) in connection with PINOCCHIO." Attorney Hirsch disagreed with significantly material parts of this letter. Columbia would not accept the terms outlined in Spira's letter. Warner refused to relinquish any rights it might have in the Coppola "Pinocchio" project.

        A mutually agreed upon settlement was not accomplished. The parties presented evidence of their respective theories as to what occurred and, of course, attributed full blame for this failure to the opposite side.

        The Warner-Coppola claims were not resolved. The "Pinocchio" project was not financed. Columbia would not proceed. Coppola's "Pinocchio" was not produced. This litigation followed.


        Coppola contends that the Spira letter dated February 17, 1994, constituted a wrongful interference with Coppola's prospective economic advantage in the production of "Pinocchio" at Columbia; and, that Warner's refusal to relinquish whatever claims it may have had in a Coppola "Pinocchio" project constituted wrongful interference with the Coppola-Columbia contractual relationship

        Warner contends that Coppola's interference claims are barred in that Warner's correspondence and actions were in good faith justified and/or were privileged under the litigation privilege or common interest privilege or both. (Civ. Code, §47, subds. (b) and (c).) Warner argues that its letters were privileged pre-litigation communications.

        Coppola argues that Warner has waived its privilege defense(s) for failure to specifically label or name those defenses in Warner's amended answer or discovery responses. We do not agree.

        The second affirmative defense in the amended answer of defendant Warner Bros. to first amended complaint states, "3. The Fourth (Interference with Prospective Economic Advantage), Fifth (Interference with Contract) and Sixth (Slander of Title) Causes of Action are barred because Warner's actions were privileged and justified." (Parentheticals by this Court.) The litigation and common interest privileges were not specifically identified per se. Coppola did not demurrer to the answer.

        Coppola submitted form interrogatories requesting that Warner "Identify each special or affirmative defense...and for each: (a) state all facts upon which you base the special or affirmative defense..." Warner identified the "Privilege/Justification" defenses without further specification and thoroughly stated the complete factual basis for that (those) defense(s). In effect, Warner responded precisely to the letter of Coppola's form interrogatory. It is difficult to imagine that experienced counsel could not glean the scope of Warner's privilege defense(s) from this extensive factual recitation even though labels were not stated for the exact privilege(s) relied upon. We note also that no further discovery or motions to compel were pursued on this issue.

        Coppola filed a motion in limine No. 7 to exclude certain evidence of affirmative defenses; etc. The affirmative defenses addressed were the litigation privilege, the common interest privilege and the competition privilege.

        Warner filed a motion that the court determine Warner Bros.'s privilege defense (defendant's motion in limine No. 6)

        The trial court deferred ruling on either of the motions relating to Warner's privilege defenses and, instructed counsel not to mention specific privilege issues during opening statements. Considering the nature of this case, the court's chosen procedure was understandable and reasonable. However, the record does not reflect that the trial court ever specifically ruled on either of these motions.

        The record does not support Coppola's assertion that the trial court ruled in limine to exclude all evidence and argument of the litigation and common interest privileges. Coppola correctly points out that the reporter's transcript indicates only that the trial court deferred a ruling. Warner argues that a subsequent minute order (not in the record on appeal) purports to nunc pro tunc deny Coppola's motion in limine. Warner argues that the purported nunc pro tunc minute order merely deferred a ruling. It is unnecessary to resolve this dispute. One point is clear: the trial court did not grant Coppola's in limine motion.

        A full evidentiary trial proceeded, including all of the evidence necessary to a determination of Warner's privilege defenses.

        At the conclusion of Coppola's evidence, Warner moved for nonsuit and argued, inter alia, its privilege defenses. The court denied Warner's motions with respect to the interference with prospective economic advantage and interference with contract causes of action; and, granted the motion with respect to the slander of title cause of action specifically relying on the common interest privilege.

        After both sides rested their cases, Warner moved for directed verdicts, again arguing, inter alia, its privilege and justification defenses. The trial court denied Warner's motions.

        We hold that the test of probable cause is applicable in the resolution of the privilege issues. In Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1130-1137 the California Supreme Court, by analogy to malicious prosecution actions, specifically extended the probable cause test to the torts of interference with contract and prospective economic advantage. (Id. at p.1132)

        For purposes of analyzing Warner's privilege defense(s), the existence or nonexistence of an enforceable Warner-Coppola contract is not relevant. The inquiry is whether or not Warner had probable cause to make the claim of right stated in the Spira letter dated February 17, 1994, regarding any Coppola developed "Pinocchio" project.

        The issue of probable cause is to be determined by the court, not the jury. (Sheldon Appel Co. v. Albert & Oliker (1989) 47 Cal.3d 863, 873-877; Pacific Gas & Electric Co. v. Bear Stearns & Co., supra, 50 Cal.3d 1118, 1131.) In the case at bench, although its orders denying Warner's nonsuit and directed verdict motions implicitly found against Warner, except for the slander of title cause of action, the trial court did not specifically determine the privilege issues one way or the other.

        The evidence pertinent to a determination of probable cause is not in dispute. Only the legal consequences of that evidence are in controversy. Thus, the matter may be determined on appeal by de novo review. (Sheldon Appel Co. v. Albert & Oliker, supra, 47 Cal.3d at pp. 884-886; Hufstedler, Kaus & Ettinger v. Superior Court (1996) 42 Cal.App.4th 55, 63.)

        Motion picture development and production operates in a unique business universe. There was testimony defining the industry distinction between an "agreement" and a "deal." Film projects progress with substantial expenditures of money, talent, resources and time while formal contract negotiations are continuing. Multi-million dollar film projects are developed and completed (or cancelled) on the basis of loose, artistic understandings without written, signed contracts. The Coppola-Warner relationship in developing "Hoover" and "Secret Garden" is a case in point. There is a distinction between "creative executives" and "decision makers," the latter having authority to bind, the former having no such binding authority notwithstanding their testimony and opinions regarding the existence or nonexistence of contractual obligations. Black letter certainty doesn't seem to be a priority until a relationship disintegrates into court proceedings. Then, of course, the absence of a written, signed contract becomes paramount in the minds of at least one side to the dispute.

        Liability for wrongful interference with contract or prospective economic advantage cannot be predicated upon the assertion of a colorable claim of right supported by probable cause. (Pacific Gas & Electric Co. v. Bear Stearns & Co., supra, 50 Cal.3d at pp. 1131-1137.) In Sheldon Appel Co. v. Albert & Oliker, supra, 47 Cal.3d 863, the California Supreme Court held that "...the probable cause element calls on the trial court to make an objective determination of the 'reasonableness' of the defendant's conduct.... The resolution of that question of law calls for the application of an objective standard to the facts.... (Citation)." (Id. at p. 878, emphasis added.)

        The issue is not a subjective inquiry as to whether or not Warner, through its representatives, thought it had a legally enforceable claim of rights in the Coppola "Pinocchio" project. Rather, the inquiry is objective: Would any reasonable attorney have thought that there exists any colorable, tenable claim or is the claim totally and completely without merit. (Sheldon Appel Co. v. Albert & Oliker, supra, 47 Cal.3d at pp.884-886.) The Supreme Court specifically applied a "reasonable attorney" test, rejected a "prudent attorney" test and adopted, by analogy, the standard established in In re Marriage of Flaherty (1982) 31 Cal.3d 637; Sheldon Appel Co. v. Albert & Oliker, supra, at pp. 884-886; Hufstedler, Kaus & Ettinger v. Superior Court (1996) 42 Cal.App.4th 55, 66.

        This objective standard is applied from the perspective existent as of the time the actions were taken, not at the time legal determinations of enforceability or viability are made by a trial court.

        With respect to the tortious interference causes of action, the record does not disclose that the trial court specifically applied the aforementioned objective standard and specifically rule as a matter of law on Warner's privilege defenses. However, the privilege and justification issues were properly raised in the trial court and are not waived on appeal.

        This court is in as good a position as the trial court to resolve the determinative legal question, namely, whether or not there was probable cause for the Spira letter dated February 17, 1994 and Warner's refusal to relinquish its perceived rights in a Coppola "Pinocchio" project. (Sheldon Appel Co. v. Albert & Oliker, supra, 47 Cal.3d at p.884.)

        The February 17, 1994, letter from Warner executive Spira to Coppola's agent, with a copy to a Columbia executive, was sent in response to an industry rumor that Coppola was moving the "Pinocchio" project from Warner to Columbia.

        Warner and Coppola had worked together for approximately two years in developing "Pinocchio" as well as "Secret Garden" and "Hoover." Warner expended $350,000 on the "Pinocchio" project. Although a Warner-Coppola long-form contract was never concluded, Coppola did sign a certificate of employment which, in comprehensive language, purports to vest in Warner all of Coppola's work product on any "Pinocchio" project. Warner paid money to Coppola and others in connection with said Certificate of Employment.

        We conclude that a reasonable attorney, considering the facts before the court, would believe that Warner had a legally tenable claim in any Coppola "Pinocchio" project and that such claim was not totally and completely without merit.

        The actual or imminent filing of a lawsuit following a prelitigation communication of a claim of right is not essential to perfecting the privilege defense. "In other words, if the statement is made with a good faith belief in a legally viable claim and in serious contemplation of litigation, then the statement is sufficiently connected to litigation and will be protected by the litigation privilege. The privilege then applied is absolute." (Aaronson v. Kinsella (1997) 58 Cal.App.4th 254, 266; Rubin v. Green (1993) 4 Cal.4th 1187; Letrette v. Dean Witter Organization Inc. (1976) 60 Cal.App.3d 573, 576-578; Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc. (1993) 508 U.S. 49; Cardtoons, L.C. v. Major League Baseball Players Ass'n. (10th Cir. 1999) 182 F.3d 1132.)

        Coppola's argument that the litigation privilege is inapplicable because Warner did not file a lawsuit is not persuasive. There is substantial evidence supporting Warner's argument that, absent a settlement, litigation was inevitable. Coppola was simply the first party to the courthouse. A lawsuit emanating from these transactions was in fact filed by Coppola seeking, inter alia, a legal declaration of the parties' rights in and to the "Pinocchio" project. The identity of the party initiating the litigation is irrelevant.

        This case was filed September 13, 1995, 19 months following Spira's February 17, 1994 letter. During this period, Warner, Coppola and Columbia were attempting to resolve the competing claims of rights in and to the Coppola "Pinocchio" project. This was a reasonable and laudable course of conduct, i.e., avoiding litigation. The Spira letter is not so remote in time from the filing of litigation that doubt would be cast upon the good faith belief in the rights alleged or upon the "serious contemplation" of the litigation option. (Aaronson v. Kinsella supra, 58 Cal.App.4th at pp. 266-268.)

        The Spira letter dated February 17, 1994, was supported by probable cause. It constitutes a privileged pre-litigation communication. (Civ. Code §47, subd. (b).) This privilege is an absolute defense to any Coppola claim arising solely from that written communication, to wit wrongful interference with prospective economic advantage and slander of title.

        We further hold that the aforementioned correspondence falls within the common interest privilege (Civ. Code, §47, subd. (c)). Clearly, all parties (Coppola, Warner and Columbia) had common interests in the rights in and to the Coppola "Pinocchio" project.

        There is no clear and convincing evidence that Warner acted with malice. At best there is hearsay testimony (received without objection) that the witnesses had heard from third parties that two high level Warner executives did not like Coppola. Assuming, arguendo, that to be true, merely not liking a person does not rise to the level of legal malice. (Civ. Code, §3294.) The record does not support an argument that Warner acted in a despicable manner vis-a-vis Coppola with ill will, hatred or with intent to injure, vex, annoy or harass him.

        The trial court granted Warner's motion for nonsuit as to Coppola's slander of title cause of action. The record does not support Coppola's argument that the court granted nonsuit because Coppola had failed to prove the absence of privilege. The court specifically ruled that the motion was granted on the ground that the common interest privilege applied (Civ. Code, §47, subd. (c)). The court also found that there was no evidence of malice in the actions taken by Warner. We agree with both rulings.

        For the reason stated herein, we find that it was error for the trial court to deny Warner's motion for nonsuit as to Coppola's cause of action for wrongful interference with prospective economic advantage. The timing of events dictates that this cause of action must be founded solely upon the Spira letter dated February 17, 1994, which is privileged as pre-litigation and common interest correspondence. The litigation and common interest privileges (Civ. Code, §47, subds. (b) and (c)) are absolute defenses.

        Although not entirely clear, it appears that Coppola's cause of action for interference with contractual relations is based upon the Spira letter dated February 17, 1994, Warner's allegedly wrongful assertion of rights arising from settlement negotiations and Warner's allegedly wrongful refusal to relinquish its claim of right in and to Coppola's "Pinocchio" project.

        We have concluded that the Spira letter dated February 17, 1994, is a privileged pre-litigation and common interest writing. The viability of Coppola's wrongful interference with contract claim must be analyzed absent that letter.

        Coppola's attorneys advised Columbia that Warner was asserting a claim of right in and to any Coppola "Pinocchio" project and provided Columbia with all documents pertinent to the Coppola-Warner relationship and the Coppola "Pinocchio" project. Thereafter, Columbia insisted that its contract with Coppola contain a clause requiring that the Warner claim be resolved as a condition precedent to Columbia's funding of and proceeding with a Coppola "Pinocchio" project. Columbia agreed in that contract to finance litigation brought by Coppola to determine his rights vis-a-vis Warner.

        Coppola and Warner entered into negotiations in an attempt to settle their respective claims. The parties devoted appreciable time, talent and expense to these settlement efforts. Negotiations were carried out between Warner representatives and Coppola's attorneys, Armstrong and Hirsch. Columbia was not a party to the negotiations. Armstrong & Hirsch, as Coppola's attorneys, communicated with Columbia regarding the settlement negotiations. Warner did not contact Columbia regarding the negotiations.

        By letter dated September 23, 1994, Warner purportedly confirmed "... the basic terms of the agreement resolving the dispute...." Attorney Hirsch advised Warner that the "basic terms" in the September 23 letter were never agreed upon and were unacceptable to both Coppola and Columbia. Although further discussions occurred, the parties did not conclude a settlement.

        We have concluded that the underlying claim of Warner in and to any Coppola "Pinocchio" project was legally tenable or colorable. We do not decide whether Warner's claim was legally viable or enforceable -- only that it was legally tenable, not totally and completely without merit.

        Therefore, Warner was at liberty to take whatever legal measures were available to protect and enforce that claim. The demands made and positions taken by the parties during negotiations and the exchange of settlement communications ultimately resulting in disagreement are all privileged from derivative tort liability. While Coppola may sincerely believe that Warner's demands were unreasonable, Warner believed with equal sincerity that its demands were reasonable and the appropriate basis or price for relinquishing its colorable claim of rights in and to any Coppola "Pinocchio" film project.

        Statements made in the course of litigating a colorable, objectively tenable claim are not actionable. The phrase "in the course of litigation," in addition to a filed lawsuit, also includes pre-litigation communications, settlement negotiations and communications emerging from settlement negotiations. Assuming that the underlying claim is objectively tenable, not totally and completely without merit, settlement negotiations regarding such a claim and communications emerging from such negotiations cannot be the basis for derivative tort liability. (Pacific Gas & Electric Co. v. Bear Stearns & Co., supra, 50 Cal.3d at pp. 1130-1137; Sheldon Appel Co. v. Albert & Oliker, supra, 47 Cal.3d 863; In re Marriage of Flaherty (1982) 31 Cal.3d 637).

        The Pacific Gas & Electric Co. v. Bear Sterns & Co., supra, 50 Cal.3d 1118 and Sheldon Appel Co. v. Albert & Oliker, supra, 47 Cal.3d 863 cases discuss at length the fundamental public policy of assuring the utmost freedom of access to the courts and to avoid improperly deterring individuals from resorting to the courts for the resolution of disputes.

        Furthermore, there is another fundamental policy favoring and encouraging the early resolution of disputes through settlement before resorting to the courts. This policy would be seriously impaired if a party to unsuccessful settlement negotiations were subjected to liability for refusing to relinquish the unsettled, objectively tenable claim. Coppola's argument asserting tort liability for Warner's refusal to relinquish an unsettled, objectively tenable claim of rights in and to a Coppola "Pinocchio" project are without merit.

        We hold that Warner has absolute defenses under Civil Code sections 47, subdivisions (b) and (c) to Coppola's tort causes of action for wrongful interference with prospective economic advantage and wrongful interference with contract. This determination is dispositive of the entire litigation. All remaining issues are, therefore, moot.


        The judgement in favor of Coppola and against Warner is reversed. The case is remanded for entry of judgement in favor of Warner and against Coppola.

        The appeal of Coppola from judgment notwithstanding the verdict on the issue of punitive damages is dismissed.

        Warner shall recover its costs on appeal.

                                                                                STOEVER, J.*

        We concur:




* Assigned by the Acting Chief Justice pursuant to article VI, section 6 of the California Constitution.

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