By: Jonathan E. Joseph, MBA, CPA
Juris Doctor Candidate, 2016
Valparaiso University School of Law
Who is to blame when a motion picture receives critical acclaim yet is a commercial failure? In Merry Gentlemen, LLC v. George and Leona Productions, Inc. & Michael Keaton, Merry Gentleman, LLC blamed leading man and director Michael Keaton and George and Leona Productions, Inc. for the fact that the 2009 film The Merry Gentleman failed to show a profit and tried to use breach of contract to make the point.
The plaintiff argued that Keaton violated his directing contract by (1) failing to prepare the first cut of the film in a timely fashion; (2) submitting a first cut that was incomplete; (3) submitting a revised cut that was not ready for the producers to watch; (4) communicating directly with officials at the Sundance Film Festival and threatening to boycott the festival, if they did not accept his director’s cut instead of the producers’ preferred cut; (5) failing to cooperate with the producers during the post-production process; and (6) failing to promote the film adequately. The plaintiff asked the Court for its full investment of $5.5 million.
Had the case gone to trial, it would have been difficult to prove the plaintiff’s claims that his actions amounted to breach of contract. Keaton did complete the film, which was subsequently accepted at the prestigious Sundance Film Festival. It received critical praise—Roger Ebert, for example, gave it 3.5 stars out of 4 and called it “original, absorbing and curiously moving.” And the film’s executive producer, Paul Duggan, admitted during his deposition that he was “unaware of any director who did more publicity than Keaton did for a movie with a comparable budget.” Instead, Keaton moved for summary judgment on the “narrow ground that the plaintiff had failed to produce sufficient evidence that his alleged breaches of the directing contract caused it damages. On appeal, the district court assumed that Keaton had breached the contract and examined the issue of damages, as well as the causation of resulting harm from the alleged breach of contract.
Under Illinois law, a “party injured by another’s breach or repudiation of a contract usually seeks recovery in the form of damages based on his ‘expectation interest,’ which involves obtaining the ‘benefit of the bargain,’ or his ‘reliance interest,’ which involves reimbursement for loss caused by reliance on a contract.” With this being said, in essence, the plaintiffs were seeking the amount of the movie’s budget in full—or in other words, a free movie. The court held in Keaton’s favor, finding that the plaintiff had failed to present a genuine issue of material fact regarding causation and resulting damages.
The plaintiff might have received part of its investment, if it had claimed that Keaton’s performance slowed production, accrued extra costs, or caused other negative financial consequences. Instead, The plaintiff asked for its entire investment as damages for breach of contract, which was impossible to justify because Keaton had not walked away from his contract. They were merely making he argument that they had relief on Keaton’s performance with the expectation interest of receiving a profitable movie.
Recovering one’s investment is a theory of reliance damages. Extra costs would also look like a theory of reliance damages in the sense that increased costs could affect any expected downstream profits (this is really complicated, because downstream profit is actually a form of consequential damage that could be thought of as reliance). As for expectation, it is possible for someone to perform his contract duties so poorly, that the expectation interest is completely frustrated. This all needs to be related to the legal standards given above about expectation and reliance damages in a more clear way, if, in fact, that was what the court’s concern.
He had made the movie and it had generated critical acclaim. If the court had sided with the plaintiff and awarded the damages it was seeking, the plaintiff would have had more than it started with; it would have been awarded a free film. More specifically, the plaintiff would have received back the money it put out in reliance on Keaton’s promise, so it would be put back in the status quo ante. Even if Keaton had breached, there was still some benefit the plaintiff received the form of a movie that was a critical success and earned some money.
On appeal, the Court found that the plaintiff “effectively wants to shift the entire cost—and risk—of producing The Merry Gentleman to Keaton for his alleged breaches, giving it a windfall and placing it in a better position than it would have been in had the contract never been signed.” Reliance damages are not insurance. Courts “will not ‘knowingly put the plaintiff [receiving a reliance recovery] in a better position than he would have occupied had the contract been fully performed.’” In general, reliance damages are capped by the expectation interest and this is the reasoning the court used.
The Court dryly noted that the plaintiff might have been able to recover some damages for specific failures by Keaton, but in this case it “shot for the moon and missed.” Keaton fulfilled his contract and made a movie. The plaintiff was not entitled to something for nothing. Its investment – and its contract with Keaton – involved a degree of risk, and it was unreasonable for the plaintiff to expect the court to find in its favor simply because it didn’t like the final result.