Was It Really Michael Keaton’s Fault?
September 9, 2015
by Jerry Glover
Did you see the film directed by Michael Keaton entitled “The Merry Gentleman”? If not, that’s OK. Very few people did even though the late Roger Ebert gave it 3.5 out of 4 stars following its debut at the Sundance Film Festival in 2009. Nevertheless, it was a commercial disaster. Claiming that Keaton’s breach of his director’s contract was the reason for this failure, the producer’s sued Keaton and his loan out company, George and Leona Productions, Inc., in Illinois federal court for the entire cost of the film–$5.5 million. Merry Gentleman, LLC v. George and Leona productions, Inc., 2015 WL 5011589 (7th Circuit August 25, 2015). We posted a summary of the trial court decision from 2013 HERE. [NOTE: A loan out company “loans” the services of its employee, in this case Keaton, to others. The contract the loan out company enters into with a third party requires that third party to pay paid what is usually thought of as the employee’s fee directly to the loan out, resulting in more favorable tax treatment for that employee.]
As summarized by the appellate court, the producers claimed Keaton violated his contract by, “(i) failing to prepare the first cut of the film in a timely fashion; (ii) submitting a first cut that was incomplete; (iii) submitting a revised cut that was not ready for the producers to watch; (iv) 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; (v) failing to cooperate with the producers during the post-production process; and (vi) failing to promote the film adequately.” The court doubted that any of these claims actually amounted to a breach of the contract since Keaton did finish the film, but it was required to focus only on Keaton’s motion that, assuming he breached the contract, the producers failed to produce sufficient evidence that the breach was the direct cause of the loss of the producer’s entire investment in the film.
The producers alleged they had suffered what is known as reliance damages as a result of the breach. The court noted that Illinois contract law governed this case adding that Illinois follows the dictates of the Restatement of Contracts in determining what must be proved when reliance damages are asserted. Specifically, the court pointed to Section 349 of the Restatement which states that an “injured party has a right to damages based on his reliance interest including expenditures made in preparation for performance or in performance less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed. Restatement (Second) of Contracts Sec. 349 (1991). The court added that Section 344 of the Restatement explains that reliance damages attempt to put the injured party “in as good a position as [the injured party] would have been in had the contract not been made.”
The producers argued that its burden of showing that Keaton’s alleged breach caused the damages asserted was a low one. They explained that once they showed how much money they spent on the production of the film, it was then up to Keaton to prove that the producers would have suffered those losses even if he had fully performed the contract. The court agreed with the producer’s explanation of the burden of proof, but noted that the burden did not shift to Keaton until the producers presented sufficient evidence to show that Keaton’s alleged breach had caused their losses. And in this case, the court held the producers failed to do so.
The court noted that reliance damages are usually claimed when a defendant in a breach of contract suit has walked away from the contract, a clear cause of the plaintiff’s damages since the plaintiff is left holding the bag. So if Keaton had prevented completion of the film then the cause of the producer’s $5.5 million damages claim might be a strong one. But even if Keaton had breached the contract as the producers’ claimed, he did in fact finish the film and received some critical praise for it. So Keaton’s behavior did not render the producer’s investment worthless.
The Seventh Circuit noted that reliance damages are not insurance and that the producers could not be put in a better position that they would have been had Keaton finished the film as they wanted, at least not to the tune of $5.5 million. The court pointed to the provision in Keaton’s director contract that agreed to pay him only $100,000 for those services and added, without deciding, that perhaps the producers should have sued for that amount. But awarding the producer’s $5.5 million for a finished film that received critical praise would put them in that better position. The court concluded that perhaps the producers would have been successful if they had requested more modest damages but, instead, they “decided to shoot for the moon and missed.”