Caseflicks

California Court of Appeal • 1997

Locke v. Warner Bros., Inc.

57 Cal. App. 4th 354 | 66 Cal. Rptr. 2d 921 | 97 Cal. Daily Op. Serv. 6932 | 97 Daily Journal DAR 11124 | 1997 Cal. App. LEXIS 676

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Takeaway

In short, this case holds that contractual discretion over subjective creative decisions must still be exercised honestly and in good faith; evidence of a preordained refusal to perform can defeat summary judgment on both contract and promissory-fraud claims.

Background

Sondra Locke, an actor and director, settled litigation with Clint Eastwood in 1990 after their personal and professional relationship ended. Around the same time, Locke and Warner Bros. entered a three-year development agreement. Warner agreed to pay Locke $250,000 annually under a nonexclusive first-look arrangement and guaranteed $750,000 under a “pay or play” directing provision. Locke would submit projects to Warner first; Warner had 30 days to approve or reject them. Warner paid the guaranteed compensation, supplied an office and assistant, but neither developed Locke’s projects nor hired her to direct a film. Unknown to Locke, Eastwood had agreed to reimburse Warner for the deal if Locke did not generate successful projects.

Locke sued Warner for sex discrimination, tortious breach of the implied covenant in violation of public policy, breach of contract, and fraud. She alleged Warner had entered the development deal merely to help Eastwood settle with her and never intended to work with her. In opposition to Warner’s summary-judgment motion, Locke offered evidence that Warner executives had said, in substance, that Warner was not going to work with her because hers was “Clint’s deal.”

The trial court granted Warner summary judgment on all claims. It reasoned that Warner had complete discretion to reject Locke’s proposals, that courts should not review a studio’s subjective creative decisions, and that Warner’s payment of the guaranteed compensation fulfilled its obligations. It also rejected the fraud claim for lack of evidence of fraudulent intent when the contract was formed. Locke appealed.

Issues

Issue #1

Whether Warner could obtain summary judgment on Locke’s breach-of-contract claim because the agreement gave Warner discretion to reject her proposed projects.

Holding

No. A triable issue existed as to whether Warner breached the implied covenant of good faith and fair dealing by categorically refusing to work with Locke rather than honestly evaluating her proposals on their merits.

Reasoning

California implies in every contract a covenant that neither party will deprive the other of the agreement’s benefits. When a contract gives one party discretionary power affecting the other party’s rights, that discretion must be exercised in good faith and with fair dealing.

Warner’s decisions about whether a film project was artistically or commercially attractive were subjective decisions that a court could not second-guess for reasonableness. But subjective dissatisfaction is a defense only if it is genuine and honestly held. The trial court therefore erred by treating Warner’s creative discretion as wholly immune from review.

The guaranteed payments did not necessarily exhaust Locke’s contractual benefit. The development deal also gave her an opportunity to develop and direct films, earn further compensation, and advance her directing career. A jury could find that those benefits were frustrated if Warner merely pretended to consider her submissions while refusing to work with her in all events.

Testimony attributed to Warner executives supported a reasonable inference of categorical rejection. One executive allegedly said, “we’re not going to work with her” and referred to “Clint’s deal”; another allegedly stated that Warner was not going to make a movie with Locke. That evidence permitted a factfinder to conclude Warner rejected Locke irrespective of the merits of her projects, rather than because of an honest dissatisfaction with them.

The implied covenant did not improperly rewrite the agreement. Unlike an agreement expressly allowing a party to refrain from performance altogether, the Locke-Warner agreement gave Warner discretion over development decisions but did not expressly authorize Warner to refuse categorically ever to work with Locke. Good faith therefore constrained the exercise of Warner’s discretion.

Issue #2

Whether Warner was entitled to summary judgment on Locke’s fraud claim alleging that Warner promised performance without intending to perform.

Holding

No. The evidence created a triable issue as to whether Warner entered the agreement without intending to give Locke’s projects a good-faith evaluation.

Reasoning

The trial court’s first reason for rejecting fraud—that Warner had not breached the contract—failed once a triable issue existed on the contract claim. A jury could find both that Warner owed Locke a good-faith exercise of discretion and that it did not provide one.

Fraudulent intent ordinarily must be established through circumstantial evidence. A party’s failure even to attempt performance can support an inference that the party lacked intent to perform when it made its promise.

The executives’ later statements that Warner would not work with Locke, coupled with Eastwood’s agreement to reimburse Warner’s losses under the deal, permitted an inference that Warner made the agreement solely as an accommodation to Eastwood. A reasonable jury could infer that Warner never intended to consider Locke’s proposals in good faith when it signed the agreement. The timing and weight of that evidence were matters for the trier of fact, not grounds for summary judgment.

Issue #3

Whether the Court of Appeal should reverse summary judgment on Locke’s sex-discrimination and related public-policy claims.

Holding

No. Locke waived appellate review of those claims by failing to challenge their dismissal in her opening brief.

Reasoning

Locke’s opening brief did not argue that the trial court erred in granting summary judgment on her two claims alleging gender bias. Raising that argument for the first time in her reply brief was untimely.

Absent good cause, an appellant’s failure to raise an issue in the opening brief waives the issue on appeal. Because Locke showed no good reason to depart from that rule, the court left the judgment intact as to the discrimination-based claims.