## Facts

- Sondra Locke, through her company Caritas Films, entered a written development and “pay-or-play” directing agreement with Warner Bros. dated November 27, 1990.
- The agreement gave Locke a nonexclusive “first look” arrangement: she could submit projects for development and Warner had a limited time to approve or reject each submission.
- Warner retained discretion to develop or reject projects and to either use Locke as a director or pay her a fee under the pay-or-play feature.
- Locke submitted multiple projects under the agreement; Warner did not develop any submitted project and did not hire her to direct a film.
- Locke produced evidence that Warner personnel made statements indicating a categorical decision not to work with her (including statements to the effect of “we’re not going to work with her” and that Warner “was not going to make a movie with her”).
- Locke alleged the agreement was a sham arrangement, allegedly formed to aid a separate settlement involving a third party, with Warner never intending to perform its obligations in any meaningful way.
- Locke and Caritas sued Warner for breach of contract (including breach of the implied covenant of good faith and fair dealing) and for fraud based on an alleged promise made without intent to perform.
- The trial court granted Warner summary judgment, reasoning that Warner’s contractual discretion eliminated any duty to justify refusals and that courts should not second-guess studio creative decisions.
- Locke appealed.

## Issues

1. Whether a party with broad contractual discretion under a development/first-look agreement may still breach the implied covenant of good faith and fair dealing by categorically refusing to consider the other party’s submissions.
2. Whether evidence that Warner entered the agreement without any intent to work with Locke created a triable issue supporting promissory fraud and defeating summary judgment.

## Decision

- The Court of Appeal reversed summary judgment as to the breach-of-contract/implied-covenant claim and the fraud claim, holding triable issues of material fact existed.
- The court held that contractual discretion did not eliminate the implied covenant; a jury could find Warner acted in bad faith by predeciding never to work with Locke.
- The court held the same evidence could support an inference that Warner promised performance without intent to perform, supporting promissory fraud.
- The judgment was otherwise affirmed, and the matter was remanded for further proceedings.

## Legal Principles

- When a contract grants one party discretion affecting the other party’s rights, the implied covenant of good faith and fair dealing requires that discretion be exercised honestly and in good faith, not to frustrate the contract’s purpose.
- Courts generally do not evaluate the creative or commercial merits of a studio’s project-selection decisions, but they may assess whether the studio acted in bad faith by refusing to genuinely exercise contractual discretion.
- A categorical, predecided refusal to consider performance under a discretionary contract can constitute bad faith and breach the implied covenant.
- A promise made without intent to perform is actionable as promissory fraud under California law and may be proven through circumstantial evidence, including statements and conduct inconsistent with an intent to perform.
- On summary judgment, evidence must be viewed in the nonmoving party’s favor; if it permits competing inferences on intent and good faith, those issues are for the trier of fact.

## Conclusion

The court held that even in a highly discretionary entertainment development deal, the studio could not use its discretion as a facade while never intending to consider the counterparty’s projects, and evidence suggesting such a categorical refusal created triable issues on both implied-covenant breach and promissory-fraud claims.


Locke v. Warner Bros., Inc., 57 Cal. App. 4th 354, 66 Cal. Rptr. 2d 921 (Ct. App. 1997)