Brief - Locke v Warner Bros, Inc PDF

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The Implied Obligation of Good Faith Locke v. Warner Bros., Inc., 57 Cal. App. 4th 354 (1997) California Court of Appeal

Madden

FACTS Substantive facts: - Locke entered into an agreement with Warn Bros, which included a non-exclusive first look deal. - This deal required Locke to submit to Warner any picture she was interested in developing. - Warner had 30 days to approve or reject the picture. - Clint Eastwood, with whom Locke had previously been involved, fostered the deal. He fostered the deal as part of his settlement agreement with Locke. - Warner never hired Locke to direct any films and never developed any of her projects. - Regarding Locke, a Warner executive had stated in a telephone conversation “we’re not going to work with her.” - Another Warner employee had additionally stated that Warner would not make a movie with Locke. Procedural facts: - Locke filed suit with four causes of action: 1. Sex discrimination in violation of public policy – Warner denied her the benefit of the bargain of the development deal on account of her gender 2. Warner breached the k – by refusing to consider Locke’s proposed projects and thereby deprived her of the benefit of the bargain of the Warner/Locke agreement. 3. Tortious Breach of the Implied Covenant of Good Faith + Faith Dealing in Violation of Public Policy – in denying her the benefits of the Warner Locke/agreement, Warner was motivated by its discriminatory bias against women in violation of public policy 4. Fraud – at the time Warner entered into the agreement with her, it concealed and failed to disclose it had no intention of honoring the agreement. - Warner denied each and every allegation and asserted various affirmative defenses. - Warner filed a motion for summary judgment. - The trial court granted Warner’s motion, dismissing Locke’s claims that Warner was required to act in good faith and that Warner’s actions constituted fraud. - Locke appealed to the California Court of Appeal. ISSUE ON APPEAL: Can a party to a k require the other party to exercise discretionary duty granted to it under the k? TREATMENT: Rule(s): - A party to a k can require the other party to exercise discretionary duty granted to it under the k. When one party has discretionary power under the k, that party is required to exercise that power in good faith and in accordance with fair dealing. When a party’s discretionary power exists because a condition of the k is that a party is subjectively satisfied, the standard of honest satisfaction applies. - The implied covenant of good faith and fair dealing will not be implied to prohibit a party from doing something that a k expressly permits.

The Implied Obligation of Good Faith Madden - Regarding a claim of fraud, there must have been fraudulent intent at the time the parties entered into the k. Fraudulent intent may be inferred from circumstances that indicate a failure to even attempt performance.

Application/Rationale: - Warner executive’s statement that “we are not going to work with her” is evidence that Werner did not act in good faith. As was the other employee’s statement that Warner would not make a movie with Locke. - This evidence presents a triable issue of material fact regarding Warner’s subjective satisfaction and summary judgment should not have been granted on the issue. - The k does not expressly permit it to categorically refuse to work with locke. Because the k gave Warner discretion regarding Locke’s work, it must exercise that discretion in good faith. - Regarding Locke’s fraud claim, fraudulent intent was established through the executive’s and other employee’s comments that Warner would not work with Locke. - This was sufficient circumstantial evidence of Warner’s fraudulent intent when it entered into the k with Locke. Warner’s Arguments: - It did not breach its k with Locke because it did consider all projects she presented, and the studio’s decision not to put any of those projects into active development or hand Locke a script which it already owned was not a breach of any express or implied contractual duty. - Odds are slim a produce can get a project into development and even slimmer a director will be hired to direct a film. – Warner had similar deals w/ numerous other producers and directors who fared no better than Locke. - There was no evidence that it ignored Locke’s projects or otherwise discriminated against her on account of her gender. - The fraud claim was meritless because Locke had no evidence that when Warner signed the k, it did not intend to honor the deal, and moreover, Warner had fulfilled its contractual obligations to Locke. Locke’s Arguments: - Warner breached the agreement in that it had no intention of accepting any project regardless of its merits. - Warner committed fraud by entering into the agreement without any intention of approving any project with Locke or allowing Locke to direct another film. - Trial court erred in granting Warner’s motion for SJ based on its conclusion there were no disputed only those inferences favorable to Warner where the evidence supported contrary inferences. - The trial court committed reversible error first by failing to make any findings or evidentiary rulings and then by adopting Warner’s defective ruling.

Prior Precedent: Policy Statements: Conclusion: The court disregarded Locke’s arguments in respect to the first and third causes of action (sex discrimination and tortious breach of implied covenant) but reverse with the second and fourth causes of action (breach of k and fraud).

The Implied Obligation of Good Faith

Madden

NOTES -

Morin – objective; Locke – subjective The appellate court in Locke said that while their k gave Warner discretion in deciding whether to proceed with any of her projects, the implied obligation of good faith required at a minimum that it exercise that discretion honestly – that it judge her various proposals on their merits, not simply refuse categorically to work with her....