SMITHERS v. METRO GOLDWYN MAYER STUDIOS INC

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Court of Appeal, Second District, Division 4, California.

William SMITHERS, Plaintiff, Respondent and Cross-Appellant, v. METRO–GOLDWYN–MAYER STUDIOS, INC., et al., Defendants, Appellants and Cross-Respondents.

Civ. 65508.

Decided: February 01, 1983

Wyman, Bautzer, Rothman, Kuchel & Silbert and Charles M. Stern, Los Angeles, for defendants, appellants and cross-respondents. David E. Frank, Beverly Hills, for plaintiff, respondent and cross-appellant. Berger, Kahn, Shafton & Moss and Vicki Lynn Gutin, Los Angeles, and Cohn, Glickstein, Lurie, Ostrin, Lubell & Lubell and Jerome B. Lurie, New York City, as amici curiae on behalf of respondent and cross-appellant.

Metro-Goldwyn-Mayer Studios, Inc. (MGM), Harris Katleman (Katleman), and Bernard Weitzman (Weitzman) appeal from the judgment (as well as from the denial of a motion for judgment notwithstanding the verdict) in this action by William Smithers (Smithers).   A cross-appeal from the trial court's remittitur of punitive damages was filed by Smithers.

Smithers sued MGM, Katleman and Weitzman for breach of contract, tortious breach of contract (covenant of good faith and fair dealing), and fraud.   The jury returned its verdict as follows:

1. For Smithers against MGM, damages in the sum of $500,000, for breach of contract (count I);

2. For Smithers against MGM, for tortious breach of contract (covenant of good faith and fair dealing), damages in the sum of $300,000 (count II);

3. For Smithers against MGM, Katleman and Weitzman for fraud damages of $200,000 (count III);

4. For Smithers against MGM, punitive damages of $2 million (count IV).

The trial judge denied the motions of MGM, Katleman and Weitzman for judgment notwithstanding the verdict, and for new trial on Smithers' acceptance of reduction of damage for fraud (count III) from $200,000 to $1, and punitive damages from $2 million to $1 million.   MGM, Katleman, and Weitzman appeal.   Smithers cross-appeals.

Beginning in January 1976, MGM produced a television series entitled “Executive Suite.”   Harris Katleman was president of MGM Television and Bernard Weitzman was vice president of MGM in charge of Business Affairs.   MGM hired an independent casting agency, the Melnick/Holstra Agency, to hire actors for the “Executive Suite” series.   Through the Melnick/Holstra Agency, MGM negotiated with Smithers' agent, the William Morris Agency, to cast Smithers in the role of Anderson Galt in the series.

William Smithers is a professional actor of more than 30 years' experience.   He has appeared in motion pictures, theater, and radio productions, and has been a regular or cast member in several television series.   For approximately 11 years he has been billed as a “guest star,” usually with his name and possibly his picture appearing alone on the screen.   Appellants concede, as was established by numerous witnesses, that Smithers is a highly regarded actor.

In the course of negotiations between Smithers' agent and the casting agency, the casting director offered a provision known as a “Most-Favored-Nations” billing arrangement.   This provision ultimately read as follows:

“Except for the parts of DON WALLING, HELEN WALLING, and HOWARD RUTLEDGE, this deal is on a Most Favored Nations basis, i.e., if any other performer receives greater compensation than Artist, Artist shall receive that compensation.

“Additionally, no other performer shall receive more prominent billing or a better billing provision than Artist (except with respect to where his name is placed alphabetically on the crawl).”

This Most-Favored-Nations provision was offered by the casting director for MGM since Smithers was being offered a lower than usual compensation rate.   Further, MGM by this provision could “get some good people to work for reasonably low money and to not have to take up a great deal of space in the main titles.”   Because of the provision, and in hopes of an improved role, Smithers accepted the role.   An interim agreement, called the Outline Deal Memo, was signed by the casting director for MGM and Smithers' agent setting forth the above, being binding pending the execution of a long form contract.   Smithers' understanding was that he would get billing at the end of the show, name alphabetically, but that only three other actors would be given more prominent billing at the front of the show.

At a screening of the pilot film, Smithers saw that there were four actors with “up-front” billing, instead of the agreed upon three actors.   The casting agency had employed another actor for the series during the filming of the pilot film, and had given him “star billing.”   Smithers saw that his billing remained the same, but preferred to wait until he was in a better bargaining position to complain.   Ultimately, ten or eleven actors were given “up-front” billing, while Smithers' end-of-show-name-only billing remained the same.

When the series “Executive Suite” was sold to the CBS network, Smithers' contract provided that he would perform in at least seven of the thirteen episodes.   He actually performed in ten of the episodes.   Beginning in September 1976, the program was broadcast over the CBS television network.   Owing to poor ratings, MGM decided to make several changes, including the “story line” and the billing of the actors.   After being informed of these changes, Smithers complained that his billing was not in conformity with the most-favored-nations provision.   Upon perusal by Smithers and his agency, it was discovered that the provision had been changed in the long-form contract (which was then—November 1976—still unsigned).   The change would allow any number of actors to be billed more prominently than Smithers.   MGM's attorney in charge of drafting the contracts testified concerning the change:  “There were only two plausible explanations.   Either I made a mistake or someone told me to do it,” and “Generally somebody who had more authority than I told me to change it.”

In mid-December Smithers was told that his role was to be written out of the series.   In late December of 1976, Smithers' agent was told that the most-favored-nations provision had been a mistake, and that Smithers should waive the provision.   Upon Smithers' refusal to agree to the change, Katleman told Smithers' agent, “․ if he didn't, that he (Katleman) would be hard pressed to use Mr. Smithers again on any shows that he (Katleman) was involved with, and that if he (Katleman) were to tell this to Bud Grant, who was then the head of CBS for programing, if he (Katleman) were to tell him (Grant) this, that he (Katleman) was certain he (Grant) would go along as well with not using Mr. Smithers.”   This threat was reported to Smithers, who ultimately again refused to go along with the change.   MGM then went ahead and changed Smithers to an end-of-show billing, however, on a separate card from the rest of the end-of-show billing.

The testimony was considerable on the importance of billing to an actor.   Several witnesses testified that billing reflects the actor's stature in the industry, and affects his negotiations for roles, since it reflects what his status and compensation has been in the past.   Billing reflects recognition by the producer and the public of the actor's importance or “star quality,” and in turn affects the actor's compensation in present and future roles.

ISSUES ON MGM'S APPEAL

MGM contends that Smithers was not entitled to proceed on a theory of a tortious breach of an implied covenant of good faith and fair dealing (tortious breach of contract);  that damages for breach of contract were not shown, but if shown, were speculative, uncertain, and excessive;  that there was no evidence of fraud, but if there were, damages should not have been allowed for emotional distress on that theory, so that no basis exists for punitive damages, which were also excessive;  and that the trial court erred in refusing to give certain instructions.   Our approach is, as always, to determine whether substantial evidence supports the judgment in the trial court, viewing that evidence in the light most favorable to respondent.

A. Tortious Breach of Duty of Good Faith and Fair Dealing.

The jury found that Katleman issued what amounted to a threat to blacklist Smithers and to encourage others to blacklist him also unless he would forgo his contractual rights.   The question is whether the act gave rise to an action in tort.   Prior to trial, Judge Cole ruled that such conduct, if proved, fit “to a T” the definition enunciated in Sawyer v. Bank of America (1978) 83 Cal.App.3d 135, 139, 145 Cal.Rptr. 623:  “[T]he tort of breaching an implied covenant of good faith and fair dealing consists in bad faith action, extraneous to the contract, with the motive intentionally to frustrate the obligee's enjoyment of contract rights.”   This developing, and confusing, area of the law has had much discussion.  (See Loudenback and Jurika, Standards for Limiting the Tort of Bad Faith Breach of Contract (1982) 16 U.S.F.L.Rev. 187;  Note:  The Covenant of Good Faith and Fair Dealing:  A Common Ground for the Torts of Wrongful Discharge from Employment (1981) 21 Santa Clara L.Rev. 1111;  Diamond, The Tort of Bad Faith Breach of Contract:  When, If at all Should it be Extended Beyond Insurance Transactions (1981) 64 Marq.L.Rev. 425.)   MGM takes the position that the rule is clearly established;  however, it has an applicability limited to insurance cases or contracts of adhesions, citing Silberg v. California Life Ins. Co. (1974) 11 Cal.3d 452, 521 P.2d 1103;  Wagner v. Benson (1980) 101 Cal.App.3d 27, 161 Cal.Rptr. 516;  and dictum in Glendale Fed. Sav. & Loan Assn. v. Marina View Heights Dev. Co. (1977) 66 Cal.App.3d 101, 135, fn. 8, 135 Cal.Rptr. 802.   Smithers refers us to dictum in Tameny v. Atlantic Richfield Co. (1980) 27 Cal.3d 167, 179, fn. 12, 164 Cal.Rptr. 839, 610 P.2d 1330 and the holding in Cleary v. American Airlines (1980) 111 Cal.App.3d 443, 168 Cal.Rptr. 722, both wrongful discharge cases.  Cleary noted that the doctrine was first formulated in insurance cases, but applies to all contracts.

 The trial judge, on the motion for judgment notwithstanding the verdict, found the evidence on the issue sufficient, and we agree.   Further, it is clear that the threat was extraneous to the contract, not only intending to bludgeon Smithers into foregoing his contractual rights but also threatening action directly affecting the practice of his art and damaging to his future earning power.  (Cf. Ericson v. Playgirl, Inc. (1977) 73 Cal.App.3d 850, 140 Cal.Rptr. 921.)   We agree with Judge Cole that such bad faith conduct fits the Sawyer definition.   The jury's verdict is supported by substantial evidence.

B. Breach of Contract.

 MGM concedes that its contract with Smithers was breached, but takes the position that damages arising from such breach were speculative and incapable of ascertainment.   Damages for breach of contract must, of course, be clearly ascertainable as to their nature and origin.  (Civ.Code § 3301.)   However, it is clear that one who wilfully breaches the contract bears the risk as to the uncertainty or the difficulty of computing the amount of damages.   (Donahue v. United Artists Corp. (1969) 2 Cal.App.3d 794, 804, 83 Cal.Rptr. 131.)   A number of witnesses established the relationship between billing and the actor's future negotiations for compensation.   The jury could reasonably conclude from the evidence that Smithers suffered an economic loss by reason of MGM's failure to live up to its agreement.   Although witnesses were unable to estimate with precision how much Smithers had lost or how much he would earn in future years, the jury was provided a reasonable basis upon which to calculate damages.   That fulfills the requirement of Civil Code section 3301.   (Distribu-Dor, Inc. v. Karadanis (1970) 11 Cal.App.3d 463, 470, 90 Cal.Rptr. 231.)

C. Fraud.

 The evidence, viewed most favorably for Smithers, adequately showed that MGM, based upon later actions of its agents, had no intention of living up to its most-favored-nations provision, which was offered to induce Smithers to accept a lower than usual compensation rate.   The evidence is further sufficient to sustain the jury's determination that Smithers relied upon the promise when he entered the contract.   MGM's main point here is that damages were improperly allowed for emotional distress based upon a fraud theory.   That contention is answered by Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425, 433, 58 Cal.Rptr. 13, 426 P.2d 173;  Gruenberg v. Aetna Ins. Co. (1973) 9 Cal.3d 566, 580, 108 Cal.Rptr. 480, 510 P.2d 1032;  Restatement, Torts, 2d, Sect. 46, Comment b.   MGM cites O'Neil v. Spillane (1975) 45 Cal.App.3d 147, 119 Cal.Rptr. 245.   That case is clearly inapposite here, involving fraud in the conveyance of real property invoking section 3343 of the Civil Code.   Here the jury, based upon substantial evidence, determined that actual damage had been suffered by Smithers as a result of MGM's fraud and deceit.   Following precedent, as we must, that determination will be upheld.

SMITHERS' CROSS APPEAL

Two basic contentions are urged by Smithers:  The trial court should not have found the damages awarded under the fraud theory to be duplicative, and the punitive damages award should not have been reduced.   Smithers, therefore, would have us reinstate the jury's verdict in its entirety.

 Since the trial court, on a motion to reduce damages, sits as an independent trier of fact, we are required to accord to its order respecting damages the same deference as is given to juries' verdicts on appeal.   Therefore every presumption is in favor of the correctness of that order, in the absence of an abuse of discretion.  (Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 932–933, 148 Cal.Rptr. 389, 582 P.2d 980.)

I

 The trial court, reviewing the evidence, concluded that the damages awarded on the fraud theory duplicated those found on the theories of breach of contract and tortious breach of the covenant of good faith and fair dealing.   One may have many theories, but one recovery.   The trial court's order respecting the duplication of damages reviewed the evidence, noting the overlapping and interweaving of the facts as they supported the various theories, concluded that such interdependence warranted essentially one recovery.   That independent judgment was fully justified by the evidence, since, indeed, the summation of Smithers' counsel (though that is not dispositive) wove this very tapestry of facts for the jury.   The trial court's exercise of discretion in this regard was sound.  (Neal v. Farmers Ins. Exchange, supra, 21 Cal.3d at 932–933, 148 Cal.Rptr. 389, 582 P.2d 980;  Walker v. Signal Companies Inc. (1978) 84 Cal.App.3d 982, 994, 149 Cal.Rptr. 119.)

II

 Concerning the reduction of punitive damages, we again accord the presumption of correctness to the trial court's order.  (Neal v. Farmers Ins. Exchange, supra, 21 Cal.3d at 932–933, 148 Cal.Rptr. 389, 582 P.2d 980.)   Here the trial court found punitive damages to be justified, and the record supports that conclusion.   The trial court's judgment as to the gravity of MGM's acts, the amount of damages awarded, and MGM's wealth rests on substantial evidence.   Reducing damages to a nominal amount on the fraud theory created a facial disproportion between that nominal amount and the punitive damages before and after such reduction.   That, however, is of no consequence.  (Neal v. Farmers Ins. Exchange, supra at 929, 148 Cal.Rptr. 389, 582 P.2d 980.)

 Smithers' real contention is that the trial court, in contrast to its specifications as required by Code of Civil Procedure section 657 on the reduction of damages for emotional distress, did not meet those requirements concerning the reduction of punitive damages.   Specification is adequate, according to Neal, when “it makes reference to those aspects of the trial proceedings which, in the trial court's view, improperly led the jury to inflate its award.”  Id. at 932, 148 Cal.Rptr. 389, 582 P.2d 980.   The trial court noted that such damages were “justifiable,” and that the evidence “fully supported the conclusion that the conduct of the defendants was ‘extreme and outrageous.’ ”   Fairly read, the specification notes that MGM's threat was neither carried out nor communicated to CBS, and apparently did not cause economic loss, although it caused emotional distress.   Then the trial court found $1 million in punitive damages to be more reasonable than $2 million.   We cannot say that the punitive damages, as ultimately awarded, did not bear a reasonable relation to the actual damages as we have affirmed them.

We therefore affirm the judgment on the appeal and on the cross-appeal.   Neither party shall recover costs on appeal.

FOOTNOTES

FOOTNOTE.  

H.P. NELSON, Associate Justice.* FN* Assigned by the Chairperson of the Judicial Council.

KINGSLEY, Acting P.J., and McCLOSKY, J., concur.

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