Facts
- Art Buchwald wrote a screen treatment in 1982 (later titled King for a Day) about an African ruler who visits the United States, is deposed, becomes destitute, and ultimately marries a woman who helps him.
- Buchwald and producer Alain Bernheim presented the concept to Paramount Pictures, which optioned the treatment in 1983 and commissioned development.
- The parties’ agreement provided for specified compensation if the picture was produced and for contingent compensation tied to Paramount’s standard “net profits” definition if a film was made based on Buchwald’s material.
- Paramount released Coming to America in 1988, starring Eddie Murphy and directed by John Landis, without paying Buchwald or Bernheim contingent compensation.
- The film earned substantial revenues, but Paramount’s accounting under its contractual “net profits” definition reported no net profits and therefore no contingent payments.
- In an earlier liability phase, the court found the film was “based on” Buchwald’s treatment within the meaning of the agreement and that Paramount breached.
- The case proceeded to a separate damages phase focused on enforceability of the “net profits” provision and the proper measure of damages if that provision could not be enforced.
Issues
- Whether the contract’s “net profits” definition and accounting provisions were unconscionable and unenforceable under California law.
- If the “net profits” provision was unenforceable, what alternative measure should be used to calculate damages for Paramount’s breach.
- Whether plaintiffs were entitled to contingent compensation despite Paramount’s accounting showing zero net profits.
Decision
- The court held Paramount’s “net profits” definition and related accounting provisions unconscionable and refused to enforce them to deny any contingent compensation.
- The court rejected Paramount’s “no net profits” accounting as the basis for damages.
- The court awarded damages using alternative measures informed by evidence of industry practice and the film’s financial performance to approximate a reasonable participation.
- The litigation later ended by settlement before an appellate ruling.
Legal Principles
- Under California unconscionability doctrine, a contract term may be unenforceable when procedural unconscionability (e.g., standardized, drafter-controlled terms and bargaining inequality) combines with substantive unconscionability (grossly one-sided economic effect).
- A profit-participation clause may be substantively unconscionable where its cost allocations and deductions are structured so that even a highly successful film predictably yields “no net profits” to participants promised net-profit compensation.
- When a contractual damages measure is unenforceable due to unconscionability, a court may use other competent evidence (including industry custom and expert testimony) to determine a reasonable monetary award that reflects the parties’ expected benefit from the bargain.
- A drafting party cannot rely on an unconscionable accounting scheme to eliminate contingent compensation where the project’s commercial success would otherwise support a meaningful participation.
Conclusion
The court invalidated Paramount’s “net profits” participation formula as unconscionable and calculated damages using alternative, industry-based measures rather than the studio’s accounting that reported no net profits from a commercially successful film.