## Facts

- Maljack Productions, a nonmember independent distributor, submitted its film *Henry: Portrait of a Serial Killer* to the Motion Picture Association of America’s Code and Rating Administration (CARA) for a voluntary rating and paid the required fee.
- The film contained explicit depictions of violence, including two rapes and multiple murders.
- CARA assigned the film an “X” rating, the most restrictive rating then used in the system, and Maljack alleged the rating substantially limited commercial distribution opportunities.
- Maljack alleged CARA applied its standards more harshly to Maljack because it was not an MPAA member, while MPAA-member films with equal or greater violence received “R” ratings.
- Maljack sued for breach of contract, principally relying on the implied covenant of good faith and fair dealing in the rating agreement.
- The district court dismissed under Rule 12(b)(6) and denied Maljack leave to amend to add more detailed comparator allegations.

## Issues

1. Whether allegations that CARA assigned an “X” rating to Maljack’s film while giving “R” ratings to similarly or more violent MPAA-member films, motivated by Maljack’s nonmembership, plausibly stated a claim for breach of the implied covenant of good faith and fair dealing.
2. Whether the district court abused its discretion by denying leave to amend the complaint to add additional factual detail.

## Decision

- The D.C. Circuit reversed the Rule 12(b)(6) dismissal and held the complaint sufficiently alleged bad-faith, discriminatory exercise of contractual discretion.
- The court held the district court erred in denying leave to amend under Rule 15(a)’s liberal standard.
- The case was remanded for further proceedings.

## Legal Principles

- When a contract grants one party discretion in performance, the implied covenant of good faith and fair dealing limits that discretion; it may not be exercised arbitrarily or to evade the bargain’s purpose, including through discriminatory treatment.
- On a Rule 12(b)(6) motion, courts accept well-pleaded factual allegations as true and draw reasonable inferences in the plaintiff’s favor; detailed evidentiary comparisons are not required at the pleading stage.
- Leave to amend should be freely granted when justice requires; denying amendment is improper where the claim is facially viable and added detail would not unduly prejudice the opposing party.

## Conclusion

The court held that Maljack’s allegations plausibly claimed that MPAA/CARA used its rating discretion in bad faith by favoring member companies and disadvantaging a nonmember, and it reinstated the action while directing that Maljack be allowed to amend its complaint.


Maljack Prods., Inc. v. Motion Picture Ass'n of Am., Inc., 52 F.3d 373 (D.C. Cir. 1995)