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1 QUINN EMANUEL URQUHART OLIVER & HEDGES, LLP

Loren Kieve (Bar No. 56280)
2 210 Sansome Street, 6th Floor
San Francisco, California 94104
3 (415) 986-5700 (telephone)
(415) 986-5707 (facsimile)
4
David W. Quinto (Bar No. 106232)
5 Priya Sopori (Bar No. 210837)
865 South Figueroa Street, 10th Floor
6 Los Angeles, California 90017-2543
(213) 624-7707 (telephone)
7 (213) 624-0643 (facsimile)

8 Attorneys for Defendant and Counterclaimant

Academy of Motion Picture Arts and Sciences
9

10 IN THE UNITED STATES DISTRICT COURT

11 FOR THE NORTHERN DISTRICT OF CALIFORNIA

12 SAN FRANCISCO DIVISION

13
BEATRICE WELLES, ) CASE NO. C 03-02810 WHA
14 )
Plaintiff, )
15 ) ANSWER AND COUNTERCLAIM OF
v. ) DEFENDANT ACADEMY OF MOTION
16 ) PICTURE ARTS AND SCIENCES
ACADEMY OF MOTION PICTURE )
17 ARTS AND SCIENCES ) [Pending Transfer to the Central District of
) California]
18 Defendant. )
)
19
ACADEMY OF MOTION PICTURE )
20 ARTS AND SCIENCES, a California )
Non-Profit Corporation, )
21 )
Counterclaimant, )
22 )
v. )
23 )
BEATRICE WELLES, an individual, )
24 )
Counterdefendant. )
25 )
26

27

28

ANSWER AND COUNTERCLAIM

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1 Defendant Academy of Motion Picture Arts and Sciences (the "Academy") (1) answers the

2 complaint of plaintiff Beatrice Welles – as amended by plaintiff's July 2, 2003 dismissal of (a)

3 plaintiff's second (slander of title) and third (interference with economic relations) claims and (b)

4 dismissal of Scott Miller and David W. Quinto as defendants – and (2) counterclaims against

5 plaintiff Beatrice Welles as follows:

6 ANSWER

7 In answer to the numbered paragraphs of the complaint, the Academy states:

8 Jurisdiction and Venue

9 1. The Academy admits that plaintiff Beatrice Welles is a citizen of the state of

10 Nevada, that the Academy is a California corporation with its principal place of business in Los

11 Angeles, California and that Scott Miller and David Quinto (now dismissed as defendants) are

12 residents of California. The Academy admits that plaintiff seeks damages in excess of $75,000

13 and that the Court has diversity jurisdiction under 28 U.S.C. § 1332. The Academy admits that

14 plaintiff seeks relief under the Federal Declaratory Judgment Act 28 U.S.C. §§ 2201, 2202. The

15 Academy denies that venue is proper in the Northern District of California, and states that plaintiff

16 has stipulated to transfer this action to the United States District Court for the Central District of

17 California.

18 Intradistrict Assignment

19 2. In view of plaintiff's stipulation to transfer this action to the Central District of

20 California, this allegation is surplusage.

21 Factual Background

22 3. The Academy admits that plaintiff Beatrice Welles is the daughter of Orson Welles.

23 4. The Academy admits that the Academy awarded Mr. Welles an "Oscar" statuette

24 for writing the screenplay of the motion picture "Citizen Kane."

25 5. The Academy is without knowledge or information sufficient to form a belief as to

26 the truth of the allegations in paragraph 5 and therefore denies these allegations.

27 6. The Academy is without knowledge or information sufficient to form a belief as to

28 the truth of the allegation that in or around 1988, Ms. Welles did not know the whereabouts of her

ANSWER AND COUNTERCLAIM

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1 father's "Oscar" and therefore denies these allegations. The Academy admits that, in or around

2 1988, Ms. Welles asked the Academy for a duplicate "Oscar." The Academy denies that, in 1988,

3 Ms. Welles was acting on her own behalf when she asked the Academy for a duplicate "Oscar."

4 7. The Academy admits that it supplied Ms. Welles with a duplicate "Oscar" and

5 asked her to sign a receipt under which she agreed that she would not sell or dispose of the

6 duplicate or her father's original "Oscar" without first offering to sell them to the Academy for

7 $1.00. The Academy denies that Ms. Welles made no agreements with the Academy concerning

8 the original statuette presented to her father in 1942. The Academy is without knowledge or

9 information sufficient to form a belief as to the truth of the allegation that the whereabouts of the

10 original statuette were still unknown to Ms. Welles and therefore denies that allegation.

11 8. The Academy is without knowledge or information sufficient to form a belief as to

12 the truth of the allegations in paragraph 8 and therefore denies those allegations.

13 9. The Academy is without knowledge or information sufficient to form a belief as to

14 the truth of the allegations in paragraph 9 and therefore denies those allegations.

15 10. The Academy is without knowledge or information sufficient to form a belief as to

16 the truth of the allegations in paragraph 10 and therefore denies those allegations.

17 11. The Academy is without knowledge or information sufficient to form a belief as to

18 the truth of the allegation that, in 2003, Ms. Welles decided she wanted to offer the original

19 statuette at public auction through Christie's and therefore denies that allegation, except that it

20 admits that Ms. Welles evidently planned to offer the original statuette at public auction through

21 Christie's on July 25, 2003. The Academy admits that no auction has taken place, but the

22 Academy is without knowledge or information sufficient to form a belief as to the truth of the

23 allegation that no offers of sale have been made or offers of purchase received and therefore

24 denies those allegations.

25 First Claim

26 12. The Academy incorporates by reference its responses to paragraphs 1 through 11

27 above, as if fully set forth herein.

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ANSWER AND COUNTERCLAIM

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1 13. The Academy admits that an actual controversy has arisen in that plaintiff Beatrice

2 Welles alleges that she has no obligation to offer to the Academy the original statuette presented to

3 her father in 1941, while the Academy contends that Ms. Welles may sell or dispose of the original

4 statuette only if she first offers to sell it to the Academy for $1.00.

5 14. The Academy admits the allegation that a declaration is necessary so that the

6 parties will know their rights and obligations. The Academy denies the allegation that the receipt

7 Ms. Welles signed applies only to the duplicate statuette.

8 Except to the extent that the Academy has expressly admitted or qualifed its answers to the

9 allegations in the complaint (as amended by plaintiff's July 2, 2002 notice of dismissal of certain

10 claims and defendants), the Academy denies each and every allegation in the complaint and

11 demands strict proof thereof.

12 AFFIRMATIVE DEFENSES

13 First Affirmative Defense

14 15. Plaintiff's claim is barred by reason of plaintiff's prior material breach of the

15 agreement on which she bases her claim for relief.

16 Second Affirmative Defense

17 16. Plaintiff's claim is barred, in whole or in part, by plaintiff's prior material

18 misrepresentations.

19 Third Affirmative Defense

20 17. Plaintiff's claim is barred, in whole or in part, because plaintiff unreasonably failed

21 to mitigate her damages.

22 Fourth Affirmative Defense

23 18. Plaintiff's claim for relief is barred, in whole or in part, by the doctrine of waiver.

24 Fifth Affirmative Defense

25 19. Plaintiff's claim for relief is barred, in whole or in part, by the doctrine of estoppel.

26 Sixth Affirmative Defense

27 20. Plaintiff's claim for relief is barred by the doctrine of unclean hands.

28 * * * * *

ANSWER AND COUNTERCLAIM

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1 Defendant Academy of Motion Picture Arts and Sciences therefore prays that plaintiff take

2 nothing by her complaint and that the Academy be awarded its reasonable costs and fees incurred

3 herein and such other relief as the Court may allow.

4 COUNTERCLAIM

5 Nature of the Action

6 1. The Academy brings this counterclaim against plaintiff Beatrice Welles to prevent

7 her from selling the "Oscar" statuette received by Orson Welles first without offering to sell it to

8 the Academy as required by a written agreement signed by Ms. Welles. The Academy seeks to

9 prevent the unjust enrichment of Ms. Welles, who will profit from the sale of the statuette in breach

10 of that agreement, and to protect the Academy's reputation and good will associated with its

11 "Oscar" award.

12 The Parties

13 2. The Academy is a nonprofit corporation under the laws of the State of California,

14 with its principal place of business in Los Angeles County, California. The Academy was founded

15 in 1927 by a distinguished group of film industry leaders for the purposes, among others, of

16 advancing motion picture arts and sciences and promoting cultural, educational, and technological

17 progress by fostering cooperation among the motion picture industry's creative leadership.

18 3. The Academy is informed and believes, and on that basis alleges that

19 counterdefendant Beatrice Welles is an individual who resides in the State of Nevada.

20 Jurisdiction and Venue

21 4. This Court has diversity jurisdiction over the Academy's counterclaims pursuant to

22 28 U.S.C. § 1332. This action arises under the Federal Declaratory Judgment Act 28 U.S.C. §§

23 2201, 2202. Venue is proper in the Central District of California pursuant to 28 U.S.C. § 1391(a).

24 The "Oscar"

25 5. As an incentive for members of the industry to strive for excellence in film making,

26 and as a means of recognizing persons who make outstanding contributions in their respective

27 creative fields, the Academy confers its Academy Award of Merit, known to the public as the

28 "Oscar," in over 20 categories of achievement at its annual Academy Awards® ceremonies.

ANSWER AND COUNTERCLAIM

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1 6. The "Oscar" represents the pinnacle of success and professional recognition within

2 the motion picture industry. The prestige associated with the "Oscar" is unparalleled by any other

3 award. To maintain the award's incalculable value and uniqueness, the Academy has established

4 procedures for selecting the recipients of awards and for distributing "Oscars" to their winners.

5 7. The Academy has never intended the "Oscar" to be treated as an article of trade.

6 "Oscar" recipients -- Academy Award® winners -- receive a copy of the "Oscar" statuette, the

7 original of which has been registered under federal and copyright and trademark laws. The

8 statuette is registered under the copyright laws as an "unpublished" work of art, i.e., copies of the

9 statuette are not, and have never been, distributed to the general public. As mandated by the

10 Academy by-laws, Academy Award® recipients execute a "receipt for Academy Award Statuette"

11 containing a right-of-first-refusal agreement allowing the Academy to purchase the percipient's

12 "Oscar" for $1.00 if it is ever offered for sale.

13 The "Welles 'Oscar'"

14 8. In 1942, the Academy presented Orson Welles with an Academy Award® for Best

15 Original Screenplay for the 1941 film "Citizen Kane" (the "Welles 'Oscar'").

16 9. In January 1988, Mr. Welles' daughter, counterdefendant Beatrice Welles,

17 requested a duplicate of the "Oscar" her father received in 1942. A true and correct copy of said

18 request is attached as Exhibit A and is incorporated herein as though set forth at length. According

19 to Ms. Welles, the original Welles "Oscar" had been "lost" by her father in his extensive travels.

20 After determining that Ms. Welles was the beneficiary of the Welles' "Oscar" through her late

21 stepmother's estate, the duplicate "Oscar" was delivered to Ms. Welles. As a condition to her

22 receipt of the duplicate "Oscar," Ms. Welles was required to execute a Right of First Refusal

23 Agreement, a true and correct copy of which is attached as Exhibit B and is incorporated herein as

24 though set forth at length.

25 10. Under the terms of the Right of First Refusal Agreement, Ms. Welles agreed "not to

26 sell or otherwise dispose of [the duplicate "Oscar"], nor permit it to be sold or disposed of by

27 operation of law, without first offering to sell it to [the Academy] for the sum of $1.00." The Right

28 of First Refusal Agreement recites that it is "binding not only on me, but also on my heirs, legatees,

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1 executors, administrators, Estate, successors and assigns. My legatees and heirs shall have the

2 right to acquire said replica, if it becomes part of my Estate, subject to this agreement."

3 11. In addition, the Right of First Refusal Agreement executed by Ms. Welles, provided

4 that "Any member of the Academy who has heretofore received any Academy trophy shall be

5 bound by the foregoing receipt and agreement with the same force and effect as though he or she

6 had executed and delivered the same in consideration of receiving such trophy."

7 12. The Academy has learned that Ms. Welles has offered to sell the Welles "Oscar" at

8 an auction to be conducted by Christie Manson & Woods ("Christie's") on July 25, 2003.

9 Accordingly, by letter to Ms. Welles, dated June 13, 2003, the Academy attempted to exercise its

10 right of first refusal to purchase the Welles "Oscar" for $1.00. However, Ms. Welles has refused

11 to accept the Academy's tender of $1.00 or deliver the Welles "Oscar" to the Academy. A true and

12 correct copy of the Academy's June 13, 2003 letter is attached as Exhibit C and is incorporated

13 herein as though set forth at length.

14

15 First Counterclaim for Relief

16 (Breach of Contract)

17 13. The Academy realleges and incorporates by reference paragraphs 1 through 12

18 above.

19 14. The Academy is informed and believes, and on that basis alleges, that

20 counterdefendant Beatrice Welles, as Orson Welles' daughter, was an indirect heir to Orson

21 Welles' estate. The Academy is informed and believes, and on that basis alleges, that Ms. Welles

22 received the Welles "Oscar" directly or indirectly by gift, devise or bequest, from Orson Welles'

23 estate.

24 15. The Academy is informed and believes, and on that basis alleges, that Ms. Welles

25 owns and has consigned the Welles "Oscar" to Christie's for sale at auction; that Christie's, as

26 agent for Welles, presently holds the Welles "Oscar" in its possession and intends to offer it for

27 sale to the general public at auction; and that an auction for sale of the Welles "Oscar" is currently

28 scheduled to be held on July 25, 2003 (the "July 25 Auction"). The Academy is informed and

ANSWER AND COUNTERCLAIM

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1 believes, and on that basis alleges, that bids at the July 25 Auction may be made and received in

2 total privacy via telephone or the United States mail.

3 16. As a result of the Right of First Refusal Agreement executed by Ms. Welles, there

4 exists a contractual relationship between the Academy and Ms. Welles that requires that

5 Ms. Welles offer to sell the Welles "Oscar" to the Academy because she offered to sell the Welles

6 "Oscar" at the July 25 Auction.

7 17. The Academy has performed every condition, covenant and obligation required on

8 its part to be performed by the Right of First Refusal Agreement and its Bylaws except where such

9 performance has been excused or rendered impossible by Ms. Welles' conduct.

10 18. The Academy is informed and believes, and on that basis alleges, that Ms. Welles

11 has repudiated and breached her contractual obligations to the Academy by transferring possession

12 of the Welles "Oscar" to Christie's for sale to the general public in violation of the Academy's

13 right to purchase the Welles "Oscar" for the sum of $1.00. If the Welles "Oscar" were offered to

14 the Academy, the Academy would purchase it.

15 19. On June 13, 2003, the Academy, through its attorneys, tendered the sum of $1.00 to

16 Ms. Welles to purchase the Welles "Oscar" pursuant to the Right of First Refusal Agreement. The

17 Academy is informed and believes, and on that basis alleges, that Ms. Welles has repudiated and

18 breached her contractual obligations to the Academy by refusing to recognize the Academy's rights

19 and deliver the Welles "Oscar" to the Academy.

20 20. As a result of Ms. Welles' breach, the Academy has suffered and will suffer

21 irreparable and incalculable damage to the Academy's reputation and goodwill associated with its

22 Award of Merit and "Oscar" statuette. The Academy's "Oscar" is the incentive and reward for

23 striving to obtain the advancements that the Academy seeks to promote. To retain the value of the

24 award as a symbol of achievement, the Academy has established and maintained procedures for

25 the selection, award and distribution of its "Oscar" statuette. The award is tarnished (and the

26 incentive to achieve the Academy's purpose is diminished) by distribution of the statuette through

27 commercial efforts rather than in recognition of creative effort.

28

ANSWER AND COUNTERCLAIM

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1 21. Unless the sale of the Welles "Oscar" (whether at the July 25 Auction or otherwise)

2 is enjoined and restrained by order of this Court, counterdefendant's breach will cause substantial

3 irreparable injury to the Academy in that the Welles "Oscar" is a unique property and money

4 damages will not provide adequate compensation for its loss.

5 22. The Academy will also suffer irreparable injury if the Welles "Oscar" is sold at the

6 July 25 Auction or otherwise, as it is possible that the Academy will not be able to identify the

7 purchaser thereof because bids can be made anonymously; a purchaser of the Welles "Oscar" (at

8 the July 25 Auction or otherwise) may also become a bona fide purchaser for value, potentially

9 precluding the Academy from ever receiving the full benefits of the Right of First Refusal

10 Agreement. No award of money damages can compensate the Academy for the damage to its

11 reputation and goodwill that will result from the "Oscar" being treated as an article of trade.

12 Second Counterclaim for Relief

13 (Declaratory Relief)

14 23. The Academy hereby incorporates by reference each allegation set forth in

15 paragraphs 1 through 12, and 14 through 22, above.

16 24. An actual controversy has arisen and now exists between the Academy, on the one

17 hand, and counterdefendant, on the other hand, concerning their respective rights, duties and

18 obligations with respect to the Right of First Refusal Agreement. The Academy contends that

19 because the Welles "Oscar" has been offered for sale at the July 25 Auction, the Academy is

20 entitled to purchase the Welles "Oscar" for $1.00 and that, because it has already tendered said

21 purchase price, the Academy is entitled to immediate possession thereof.

22 25. The Academy is informed and believes, and on that basis alleges, that

23 counterdefendant disputes the contentions of the Academy as set forth above.

24 26. The Academy seeks a judicial determination of its rights, duties and obligations

25 pursuant to the Right of First Refusal Agreement, and a declaration that pursuant thereto, the

26 Academy is entitled to purchase the Welles "Oscar" for $1.00 and that, because of its prior tender

27 of such purchase price, the Academy is entitled to immediate possession thereof.

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ANSWER AND COUNTERCLAIM

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1 27. A judicial declaration and determination is necessary and appropriate at this time

2 under the circumstances so that the Academy and counterdefendant may ascertain their rights and

3 duties under the Right of First Refusal Agreement and their respective claims of right to possession

4 of the Welles "Oscar."

5 Third Counterclaim for Relief

6 (Breach of Equitable Servitude)

7 28. The Academy hereby incorporates by reference each allegation set forth in

8 paragraphs 1 through 12, 14 through 22, 24 through 27, above.

9 29. The Welles "Oscar" is personal property that was transferred to Orson Welles and

10 later made subject to an agreed restriction for valuable consideration that the Welles "Oscar"

11 would not be sold or disposed of without first offering it to the Academy for $1.00. The

12 restriction constitutes an equitable servitude enforceable against all who acquire the Welles

13 "Oscar" either without giving value or with knowledge of the restriction.

14 30. Counterdefendant was aware of this restriction and knew that she acquired

15 possession of the Welles "Oscar" without giving value and subject to the obligations and

16 restrictions imposed by the Right of First Refusal Agreement she executed. In breach of that

17 restriction, Ms. Welles has offered the Welles "Oscar" for sale to the general public without first

18 offering it to the Academy.

19 Prayer for Relief

20 WHEREFORE, the Academy prays for judgment against counterdefendant, as

21 follows:

22 (a) Dismissing plaintiff's complaint, as amended by her July 2, 2003 notice;

23 (b) For a preliminary injunction and a permanent injunction enjoining counterdefendant

24 and her officers, agents, servants, employees, affiliates and representatives, and all persons acting

25 in concert with any of them, during the pendency of this action and permanently thereafter, from

26 directly or indirectly transferring, selling, assigning, pledging, encumbering, hypothecating, or in

27 any way disposing of the Welles "Oscar" without first offering to sell it to the Academy for $1.00,

28 pursuant to the Right of First Refusal Agreement executed by counterdefendant;

ANSWER AND COUNTERCLAIM

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1 (c) For an order that counterdefendant holds the Welles "Oscar" in trust for the

2 Academy and that she deliver immediate possession of the Welles "Oscar" to the Academy;

3 (d) For a declaration that the Academy is entitled to exercise and has exercised its right

4 to purchase the Welles "Oscar" and that counterdefendant is obligated to deliver possession

5 thereof to the Academy in exchange for the $1.00 previously tendered;

6 (e) For compensatory damages in an amount according to proof;

7 (f) For its costs of suit, including attorneys' fees, incurred herein; and

8 (g) For such other and further relief as the Court may deem just and proper.

10 July 7, 2003 QUINN EMANUEL URQUHART

OLIVER & HEDGES, LLP
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13 By: /s/ Loren Kieve

Loren Kieve
14 Attorneys for Defendant
Academy of Motion Picture Arts and Sciences
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ANSWER AND COUNTERCLAIM

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