MAIN LINE PICTURES INC v. BASINGER

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Court of Appeal, Second District, Division 5, California.

MAIN LINE PICTURES, INC., Plaintiff and Respondent, v. Kim BASINGER et al., Defendants and Appellants.

No. B077509.

Decided: September 22, 1994

Greines, Martin, Stein & Richland, Irving H. Greines and Roxanne Huddleston, Beverly Hills, Katten Muchin Zavis & Weitzman, Howard L. Weitzman, Mark A. Wooster and E. Randol Schoenberg, Los Angeles, for defendants and appellants. Christensen, White, Miller, Fink & Jacobs, Patricia L. Glaser, Eric N. Landau and Nabil L. Abu-Assal, Los Angeles, for plaintiff and respondent.

Defendants and appellants, actress Kim Basinger and her “loan-out” corporation1 Mighty Wind, Inc., appeal from an $8 million judgment against them and in favor of plaintiff and respondent Main Line Pictures, Inc. in Main Line's breach of contract action relating to production of the movie “Boxing Helena.” Among other contentions relating to the sufficiency of the evidence and the excessiveness of the damages, defendants assert the special verdicts were prejudicially ambiguous in that they failed to differentiate between the liability of Basinger and Mighty Wind by use of the term “and/or.” Because we agree the “and/or” special verdicts require reversal, we need not reach defendants' remaining contentions. We reverse.

FACTS2

In December 1990, Main Line sent a copy of the screenplay of “Boxing Helena” to Basinger. Basinger was a well known actress, having starred in many movies, including “Batman” and “9 1/2 Weeks.” On December 28, 1990, Main Line's president, Carl Mazzocone wrote to Basinger through her agent Intertalent offering Basinger $500,000 plus additional deferred compensation to star in the movie.

Basinger was excited about the script and interested in playing the female lead. Barbara Dreyfus, Basinger's assistant and Mighty Wind's director of development, arranged for Basinger to meet the film's screenwriter and director, Jennifer Lynch.

Mighty Wind was Basinger's “loan-out” corporation, a company through which Basinger “loaned” her acting services. Payment for Basinger's services was made to Mighty Wind, which in turn employed and paid Basinger. On January 11, 1991, Lynch, Basinger and Dreyfus met at Mighty Wind's office. Basinger expressed an interest in the movie, which she believed would be a tremendous showcase for an actress. She also stated she felt a kinship to the role because it concerned a woman who was obsessed, a situation which was familiar to Basinger.

The screenplay contained a few nude scenes. On January 18, 1991, Basinger and Lynch met to address Basinger's concerns regarding the treatment of the nude scenes. Lynch explained in detail how she expected to film the scenes with Basinger, stating there would be no gratuitous sex scenes or frontal nudity below the waist. While the film would be sensual, it would not be explicit. The meeting lasted more than one hour and all issues involving nudity were resolved. Basinger agreed to act in the film as it had been presented to her in the script.

On January 24, 1991, Basinger met with Intertalent and agreed to act in “Boxing Helena.”

Main Line's attorney, Robert Wyman, discussed the contract's material terms with defendants' attorneys Robin Russell and Julie Philips. Mazzocone also had contract discussions with Attorney Russell. Other contract discussions took place between Attorney Wyman, Mazzocone or Lynch and Intertalent or Dreyfus.

Compensation and credit were discussed at the outset. The parties agreed Basinger would receive her usual fee of $3 million for the picture, consisting of guaranteed compensation of $600,000 plus additional deferred and contingent compensation. Basinger agreed to accept second billing behind Ed Harris, the male lead.

On February 27, 1991, Mazzocone, Attorney Wyman and Attorney Philips discussed each material term of the contract. Attorney Wyman reviewed a checklist of all terms in issue, Attorney Philips agreeing to each term as described. Following this conversation, Attorney Wyman sent Attorney Philips a “deal memo” dated February 27, 1991, setting forth the contractual terms for Basinger's performance in “Boxing Helena.”3

On February 28, 1991, Attorney Philips sent an annotated copy of the “deal memo” back to Attorney Wyman.

Attorney Philips's annotations requested certain changes to be included in a formal written document. For example, she wanted to change the number of days Basinger would work in post-production. On Attorney Philips's own copy of the document, she noted “[t]here is substantial nudity - KB ok with it ․ no frontal nudity - nothing graphic - more subliminal.” Attorney Philips also noted that the “Loan[-]out company is Mighty Wind Productions.” Mazzocone understood Mighty Wind was “Kim's production company and that's who the contract should be made with and that's where the payment [was to] be paid -- to Mighty Wind.” Such arrangements were standard and did not materially change the contract.

As soon as the agreement for Basinger's acting services was reached at the end of February, Main Line received authorization to use Basinger's photo to promote the movie. On February 28, 1991, Republic Pictures, a foreign distribution company, learned that Basinger had agreed to perform in the film; it began preselling the film in foreign markets with Basinger's name attached. Eventually, foreign presales for the movie with Basinger's name attached totaled $6.8 million. Main Line reasonably expected to receive approximately $3 million in domestic presales. The money obtained from the foreign presales would secure financing for the film.4

In April 1991, Main Line began preproduction activities including casting, wardrobe, special effects and model construction.

Because timing is critical, film industry contracts are frequently oral agreements based on unsigned “deal memos.” Often, artists authorize their agents or lawyers to bind them. Sometimes, however, the parties also desire to memorialize the agreement in an executed written contract, commonly referred to as a “long form agreement.” This written contract is usually negotiated by attorneys and contains many standard terms. Although the parties may intend their oral agreement to be binding, many subsidiary or ancillary terms may subsequently be agreed upon and incorporated into the written contract. The written agreement also enables parties to formalize their understanding in legal language. The absence of an executed written agreement does not mean there is no legally binding agreement. Basinger, for example, had entered into executed written agreements for only two of her prior films.

After the oral agreement had been reached, Attorney Wyman incorporated its material terms into written documents, an “Acting Service Agreement” and a “Producer's Standard Terms and Conditions for an Actor/Actress -- Loan-out.” An “Inducement” was also drafted. These documents were sent to Attorney Philips on March 7, 1991. Thereafter, Attorney Wyman and Attorney Philips exchanged numerous drafts of the Acting Service Agreement and the Producer's Standard Terms and Conditions, copies of which were sent to Basinger and others. During the exchange process, many ancillary terms were revised and eventually agreed upon.

In April 1991, Basinger changed agents; she replaced Intertalent with International Creative Management (ICM). After ICM read the screenplay for “Boxing Helena,” ICM concluded Basinger should not do the film.

Sometime in May of 1991, Lynch heard a rumor that Basinger was not intending to perform in the movie. Lynch telephoned Dreyfus and relayed the rumor. Dreyfus repeated the rumor to Basinger, who at the time was in the room with Dreyfus. Basinger denied the rumor and confirmed her commitment to star in the film.

On May 6, 1991, Basinger called Lynch and Mazzocone and expressed reservations about the script. Basinger stated she wanted the character to be more sympathetic. Two days later, ICM told Lynch and Mazzocone it had suggested to Basinger she not act in the film. Lynch attempted to accommodate Basinger's reservations by modifying the script. Lynch met with Basinger at Basinger's office to discuss the proposed changes.

On May 29, 1991, Attorney Wyman sent to Attorney Philips final execution drafts dated “February 29, 199[1],” of the Acting Service Agreement and the Producer's Standard Terms and Conditions. The cover letter stated Attorney Wyman was delivering an execution copy of the “Agreement between Main Line Pictures, Inc. and Mighty Wind Productions, Inc. f/s/o [for the services of] Kim Basinger.”

The Acting Service Agreement described Main Line as “producer,” Mighty Wind as “lender” and Basinger as “artist.” The Agreement called for “Lender [to] cause Artist to report for the rendition of exclusive services in connection with ․ [‘Boxing Helena.’]” Compensation was to be paid to lender, subject to lender's and artist's full performance. The Acting Service Agreement specified artist's credit and perquisites, such as transportation and dressing facilities. It also provided for merchandising and the use of artist's likeness. The signature line called for execution by “Main Line Pictures, Inc. By Carl Mazzocone” and “Mighty Wind Productions, Inc. By Kim Basinger.” There was no place for Basinger to sign as an individual. The Acting Service Agreement was never executed.

The Producer's Standard Terms and Conditions provided that Mighty Wind, “employer,” agreed to “loan-out” the services of Basinger to Main Line. It provided, inter alia, that Main Line was entitled to seek equitable relief if artist breached and employer was to indemnify producer if artist made any claim for compensation. Employer warranted that it was a duly organized and bona fide corporation. No signature lines were included in this document.

There is nothing in the record to indicate whether an Inducement was sent to Attorney Philips on May 29, 1991, along with the other two documents. Moreover, there was no testimony concerning this document. The Inducement is in the nature of a personal guarantee. The unexecuted Inducement calls for Basinger's signature. It provides the following: Basinger is familiar with the agreement between Main Line and Mighty Wind and consents to its execution. She will look solely to Mighty Wind for payment. If Mighty Wind breaches the agreement, Main Line may join her in the action without first being required to exhaust remedies against Mighty Wind. If Mighty Wind ceases to exist, Basinger is deemed to be employed directly by Main Line.

On June 10, 1991, Main Line learned that Basinger was not going to act in “Boxing Helena.”

PROCEDURAL BACKGROUND

On June 21, 1991, Main Line filed a complaint naming as defendants Basinger and Mighty Wind. The complaint alleged that defendants breached an oral and a written contract to provide Basinger's acting services. The complaint contained no alter ego allegations.5

During trial, the parties submitted proposed jury instructions. Defendants argued that since Mighty Wind was a corporation, it was entitled to instructions separate from Basinger. They asserted that Main Line had the burden to prove defendants were not distinct. Basinger argued that she was not a party to any contract. In opposition, Main Line argued no distinction existed between Basinger and Mighty Wind for purposes of this case. Main Line asserted that since the bargained-for services were Basinger's, if Basinger breached, then both Basinger and Mighty Wind breached. With no basis in the record, Main Line contended that Mighty Wind was simply a “tax configuration.” Main Line did not assert an alter ego theory. The trial court refused to instruct the jury as requested by defendants. Basinger moved for a directed verdict, arguing that if there was any contract, it was with Mighty Wind and not her. The motion was denied.

The trial court formulated its own special verdicts based upon the earlier discussions. The special verdicts consistently referred to “Basinger and/or Mighty Wind.” The trial court requested that the parties examine these special verdicts. It reminded defendants that previously the trial court had requested evidence of the separate existence of Mighty Wind and noted that the “only” evidence which made the two defendants different was that Mighty Wind was a corporation. In an offer of proof, defendants indicated they could prove Mighty Wind was a corporation. The trial court found, as a matter of law, that the jury could not find a “separation between the two.” When defendants mentioned there might be due process problems in disregarding the corporation, Main Line indicated it was willing to take that risk. The trial court concluded that everything done by Mighty Wind was done by Basinger. The special verdicts prepared by the trial court did not separate Basinger from Mighty Wind. Thus, for example, Question No. 1 of the special verdicts asked, “Did Kim Basinger and/or Mighty Wind enter into an oral contract with Main Line for Ms. Basinger to perform acting services in the movie ‘Boxing Helena?”’ (Emphasis in original.) Question No. 2 was almost identical, except that it asked if there was a written contract. Question No. 4 inquired, “Did Ms. Basinger and/or Mighty Wind breach a contract with Main Line?” and Question No. 5 asked whether “the breach of contract by Ms. Basinger and/or Mighty Wind [was] the legal cause of damage or harm to Main Line?” The damage questions also contained the phrase “Basinger and/or Mighty Wind.”

The jury concluded that “Basinger and/or Mighty Wind” had entered into both an oral and a written contract, had breached the contract and had caused damages to Main Line in the amount of $7,421,694. The jury further determined that “Basinger and/or Mighty Wind” had denied in bad faith the existence of the contract, and awarded an additional $1.5 million in damages. The jury did not award any punitive damages.

In post-trial proceedings, defendants once again argued Mighty Wind and Basinger had separate legal existence. Defendants' motions for new trial and for judgment notwithstanding the verdict were denied, except insofar as the trial court struck the $1.5 million award for bad faith denial of the contract as duplicative. Upon motion, the trial court awarded Main Line $713,522.05 in attorney's fees and costs. A $8,135,216.05 judgment was entered against Basinger and/or Mighty Wind.

Defendants appeal from the judgment.

DISCUSSION

On appeal, “‘[a] verdict should be interpreted so as to uphold it and to give it the effect intended by the jury, as well as one consistent with the law and the evidence.”’ (All-West Design, Inc. v. Boozer (1986) 183 Cal.App.3d 1212, 1223.) However, reversal is required (Cal. Const., art VI, § 13) when a verdict is hopelessly ambiguous (Mixon v. Riverview Hospital (1967) 254 Cal.App.2d 364, 375) or contains an incorrect statement of the law which probably confused and misled the jury (Byrum v. Brand (1990) 219 Cal.App.3d 926, 938). We do not interpret the ambiguous verdict of a jury when it cannot be determined from the verdict which party the jury found to be liable. If the jury's verdict leaves open the possibility of numerous conclusions as to liability, we will not draw our own conclusions from the facts if contrary factual conclusions can be reached. The result of an ambiguous jury verdict as to liability is a failure of the jury to make a finding on a critical issue. (Cf. Irelan-Yuba Etc. Min. Co. v. Pacific G. & E. (1941) 18 Cal.2d 557, 570-571.) Such a failure requires reversal. (People ex rel. Sorenson v. Randolph (1979) 99 Cal.App.3d 183, 187; cf. Rabago v. Unemployment Ins. Appeals Bd. (1978) 84 Cal.App.3d 200, 212.)

The term “and/or” is inherently ambiguous. (Cal. Shipbuilding Corp. v. Ind. Acc. Com. (1948) 85 Cal.App.2d 435, 436; In re Bell (1942) 19 Cal.2d 488, 499.) It “gives rise to multiple meanings; specifically, it can mean either or it can mean both.” (Dinkins v. American National Ins. Co. (1979) 92 Cal.App.3d 222, 232, disapproved on other grounds in Gray v. Don Miller & Associates, Inc. (1984) 35 Cal.3d 498, 507, fn. 5.) Only if the options are synonymous is there no ambiguity. (Ibid.)

Corporations are separate legal entities, distinct from their shareholders and officers. (Cooperman v. Unemployment Ins. Appeal Bd. (1975) 49 Cal.App.3d 1, 7; Maxwell Cafe v. Dept. Alcoholic Control (1956) 142 Cal.App.2d 73, 78.) They are formed for numerous business reasons, including as a shield from liability and for tax purposes. The statutory scheme which provides for the formation of corporations affords such entities privileges of separability. (Merco Constr. Engineers, Inc. v. Municipal Court (1978) 21 Cal.3d 724, 729-730; Corp. Code, § 18.) The liability of a corporation does not automatically attach to its shareholders, the owners of the corporation. (Cf. Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 785.) This is so even if the stock of the corporation is wholly owned by a single person. (Cf. Mid-Century Ins. Co. v. Gardner (1992) 9 Cal.App.4th 1205.) Rather, a corporation sues in its own name, is sued in its own name, transacts business separate from its shareholders and enters into contracts on its own accord. By their very nature, corporations have a separate identity from their owners and corporate obligations are not obligations of the shareholders. (Merco Constr. Engineers, Inc. v. Municipal Court, supra, 21 Cal.3d at pp. 729-730.) Where it appears on the face of a contract that it is entered into on behalf of the corporation “by” its agent, the corporation is liable and the agent is not. (Barrett v. Hammer Builders, Inc. (1961) 195 Cal.App.2d 305, 317; Carlesimo v. Schwebel (1948) 87 Cal.App.2d 482, 487.)

Individual professionals incorporate for a variety of reasons. (E.g., Cooperman v. Unemployment Ins. Appeals Bd., supra, 49 Cal.App.3d 1 [[[[cameraman-director].) Such personal service corporations are entitled to the same separability of identity as are other corporations. (Cf. Laughton v. Comr. (1939) 40 B.T.A. 101 [actor].) Performers' “loan-out” companies are not sham entities. (Ibid.) As a general rule, the sole shareholder of a personal service corporation is not liable for the obligations of the corporation. (Ibid.) The applicability of this general rule to sole shareholder personal service corporations is evidenced by the fact that for public policy reasons, the Legislature has determined that certain licensed or certified professionals who do business through a professional service corporation,6 such as physicians and attorneys, may be personally responsible for professional malpractice. (Corp. Code, § 13404.5, subd. (c).) The Legislature has recognized the separate nature of these corporations, but has determined that for some types of corporations and some types of liability, the corporate shield should not be available. No such special rules apply to the contractual obligations of an actress's “loan-out” corporation.

Typically, claimants reach shareholders for corporate debts by asserting the shareholder is the alter ego of the corporation, the corporate form should be disregarded and the corporate veil should be pierced. (See discussions in Mesler v. Bragg Management Co. (1985) 39 Cal.3d 290, 300; Wyatt v. Union Mortgage Co., supra, 24 Cal.3d at p. 785; Mid-Century Ins. Co. v. Gardner, supra, 9 Cal.App.4th at p. 1215; Cooperman v. Unemployment Ins. Appeals Bd., supra, 49 Cal.App.3d 1 [cameraman-director professional corporations]; Associated Vendors, Inc. v. Oakland Meat Co. (1962) 210 Cal.App.2d 825.) In this case, however, Main Line expressly rejected both at trial and on appeal any reliance on an alter ego theory. Accordingly, Main Line presented no evidence on many key alter ego factors, such as the number or identity of the shareholders, directors or officers of the corporation, the extent of its capitalization or its compliance with corporate form and formalities.

We conclude the “and/or” special verdicts in this case in connection with the contractual obligations of Basinger and Mighty Wind are prejudicially ambiguous and require reversal. “And/or” as used in the special verdicts may mean Basinger only, Mighty Wind only or both Basinger and Mighty Wind. Mighty Wind is a separate corporate entity, distinct from Basinger. The record does not disclose whether Basinger is the sole shareholder of Mighty Wind or an officer or director of the corporation. In the absence of alter ego findings, Mighty Wind and Basinger are not synonymous. Unless Mighty Wind is the alter ego of Basinger, she is not liable for the corporate obligations.

Although there is substantial evidence to support findings that both Basinger and Mighty Wind entered into and breached an oral contract with Main Line, the facts do not compel only this conclusion.7 The jury could have concluded that the contract was entered into only with Mighty Wind. Discussions took place at Mighty Wind's offices and the parties discussed that the agreement would be between Main Line and Mighty Wind. The written, but unexecuted agreements, contemplate an agreement with the corporation only. The “deal memos” evidenced an intent that the contract be entered into with Mighty Wind. The execution copy of the Acting Service Agreement called for the corporation to enter into the agreement; the signature line specified “Mighty Wind Productions, Inc. By Kim Basinger,” an agent designation. No individual signature line was provided for Basinger. The record also includes the separate Inducement, which was apparently to be signed by Basinger individually. However, the Inducement is a separate contract in the nature of a personal guarantee and the record contains no testimony concerning the Inducement. There is no evidence concerning the custom in the industry with regard to Inducements. Neither the Acting Service Agreement nor the Producer's Standard Terms and Conditions makes reference to the Inducement.

The jury could also have concluded that the contract was entered into only with Basinger. Basinger personally discussed the project with Lynch; she gave her agents the authority to bind her in a contract; the parties consistently referred to Basinger's performance; and the written documents always included Basinger's personal obligations.

Further, the jury could have concluded that both Basinger and Mighty Wind entered into a contract. Basinger's participation may have been on her own behalf, as well as on behalf of her corporation. The corporation may have been used by Basinger only as a tax vehicle; for purposes of this contract, she and the corporation both expected to be bound. The agreement was originally between Basinger and Main Line, and Mighty Wind may have been added as a party to the contract as an accommodation to Basinger.

The special verdicts contain no finding as to the party or parties who entered into the oral contract. The form of the special verdicts prevented the jury from performing its obligation to determine the separate existence of Mighty Wind and Basinger. On the record before us, the jury may have concluded Basinger personally entered into the contract. It also may have concluded Mighty Wind entered into the contract. In addition, the jury may have concluded that both Basinger and Mighty Wind entered into the contract. Had the jury concluded that only Mighty Wind entered into the contract, only Mighty Wind would be liable for breach of the contract. Even though the acting services were to be performed by Basinger, if the contract was only with Mighty Wind, then, when Basinger failed to perform, Main Line's remedy would be against Mighty Wind.

Although Basinger's services were key to the contract, the issue is the party or parties responsible if she fails to perform. If the contract is only with Mighty Wind, then only Mighty Wind can be liable for a breach of the contract. We cannot ascertain from the record whether the jury found that Basinger entered into the contract, Mighty Wind entered into the contract or they both entered into the contract. Thus, the jury verdicts fail to render a finding on a key factual issue, and the judgment must be reversed.

Defendants have requested that we not only reverse the judgment against them, but also order judgment entered in their behalf. They contend Main Line precipitated the ambiguity in the special verdicts, invited the error of the trial court in drafting the special verdicts and thereby waived a retrial. As a general rule, a reversal on the basis of improper special verdicts is unqualified. (Byrum v. Brand, supra, 219 Cal.App.3d at p. 939.) Such an unqualified reversal “puts the case ‘at large,’ as if no trial had ever taken place.” (Ibid.) Upon filing of the remittitur, the case may be retried. Ordinarily, an unqualified reversal is warranted even where the plaintiff-respondent has to some extent invited or waived the error. (Cf. Atchison Etc. Ry. Co. v. Superior Court (1939) 12 Cal.2d 549, 555; Morris v. McCauley's Quality Transmission Service (1976) 60 Cal.App.3d 964, 972; Ventura County Employees' Retirement Association v. Pope (1978) 87 Cal.App.3d 938, 943-944.) In certain exceptional circumstances, however, appellate courts have applied to a respondent the doctrines of waiver and invited error, which are typically applied to appellants, resulting in a reversal without a new trial. (Myers Building Industries, Ltd. v. Interface Technology, Inc. (1993) 13 Cal.App.4th 949, 960, fn. 8; Mayer v. Beondo (1948) 83 Cal.App.2d 665, 670-671; compare with Beck v. Arthur Murray, Inc. (1966) 245 Cal.App.2d 976, 982-983.)

Such a result is unwarranted in this case. In Myers, we struck a punitive damage award in favor of plaintiff-respondent because no tort finding was made by the jury. The jury had rendered a decision on a contract cause of action and not a tort cause of action. Unlike Myers, however, in this case, we do not have the total absence of a finding on a severable issue. Rather, the special verdicts are ambiguous on issues which are not be severable.8

DISPOSITION

The judgment is reversed. Main Line is to bear defendants' costs on appeal.

FOOTNOTES

1.  A “loan-out” corporation is a personal service corporation which lends the services of an artist to a production company.

2.  Following the usual rules on appeal, we recite the facts in the light most favorable to the findings. (Molko v. Holy Spirit Assn. (1988) 46 Cal.3d 1092, 1107; GHK Associates v. Mayer Group, Inc. (1990) 224 Cal.App.3d 856, 872.)

3.  The memorandum provided for “guaranteed compensation” of $600,000, “Gross deferment [compensation] payable out of first receipts of producer of $400,000[, [¶] a]djusted gross receipts ․ of $1,000,000 payable out of 35% of producer's receipts ․ [, [¶] a]djusted gross receipts deferment of $1,000,000 payable out of 25% of producer's receipts ․ and ․ [¶] [c] ontingent compensation equal to 15% of producer's receipts thereafter.”

4.  A presale is a minimum guarantee by a distributor in a specific market to procure that distributor's rights to show the movie in a given territory. After Basinger declined to perform in “Boxing Helena,” Main Line produced the movie with a lesser known actress. Without Basinger, total presales declined to $2.5 million.

5.  The complaint also alleged that ICM induced the breach of contract. The trial court granted ICM's motion for nonsuit based upon the manager's privilege. At the end of the trial, the trial court awarded ICM $24,203.69 in costs. Main Line has not appealed from this judgment.

6.  Professional service corporations are corporations engaged in rendering professional services in a single profession which may be rendered only pursuant to a license, certificate or registration. (Corp. Code, § 13401.)

7.  Thus, the trial court properly denied defendants' motion for judgment notwithstanding the verdict.

8.  Judgment in favor of ICM in the amount of $24,203.69 is not affected by our decision.

GRIGNON, Judge.

TURNER, P.J., and PEREZ, JJ., Concur.