## Facts

- MGM produced the television series *Executive Suite* and, through an independent casting agency, negotiated with actor William Smithers (through his agent) to play a role in the series.
- During negotiations, Smithers sought a most-favored-nations-style arrangement tying his compensation and billing prominence to those of other performers, subject to limited exceptions.
- The term appeared in an interim deal memorandum; a contemplated long-form agreement was never signed and ultimately did not include the term.
- After the series aired, other performers received higher compensation and/or more prominent billing than Smithers.
- Smithers complained, learned the term was absent from the long-form paperwork, and asserted MGM was not honoring the negotiated arrangement.
- Smithers’s character was later written out of the series; Smithers testified that an MGM executive threatened blacklisting if Smithers did not waive the disputed term.
- Smithers sued MGM and two executives for breach of contract, tortious breach of the implied covenant of good faith and fair dealing, fraud, and punitive damages.
- A jury awarded Smithers damages for contract breach ($500,000), tortious breach of the covenant ($300,000), fraud ($200,000), and punitive damages ($2,000,000).
- The trial court denied JNOV/new trial but conditioned denial of a new trial on remittitur reducing fraud damages to $1 and punitive damages to $1,000,000; Smithers accepted and cross-appealed the reductions.

## Issues

1. Whether substantial evidence supported a binding agreement that included the interim deal memorandum’s compensation/billing term despite the absence of a signed long-form contract, and whether MGM breached it.
2. Whether substantial evidence supported tort liability for breach of the implied covenant of good faith and fair dealing based on MGM’s conduct after the dispute arose.
3. Whether substantial evidence supported fraud based on alleged misrepresentation/concealment regarding inclusion of the disputed term and related conduct.
4. Whether the compensatory and punitive awards were impermissibly speculative or excessive, and whether the remittitur was proper.

## Decision

- The Court of Appeal largely affirmed the judgment for Smithers on liability and compensatory damages.
- The court held substantial evidence supported finding a binding agreement incorporating the disputed term and supported the breach finding.
- The court upheld tort liability for breach of the implied covenant based on evidence of retaliatory conduct and threats of blacklisting.
- The court upheld the fraud finding but accepted the trial court’s reduction of fraud damages to nominal damages.
- The court upheld reduction of punitive damages from the jury’s amount and affirmed the judgment as modified.

## Legal Principles

- Parties may be bound by terms reflected in a deal memorandum or preliminary writing when the evidence shows mutual assent and performance, even if a contemplated long-form agreement is not executed.
- Every contract includes an implied covenant of good faith and fair dealing; conduct that frustrates the other party’s justified contractual expectations, coupled with oppressive or retaliatory behavior, can support tort recovery in appropriate circumstances.
- Fraud may be established by material misrepresentation or concealment, knowledge, intent to induce reliance, justifiable reliance, and resulting damage; a verdict may stand even if the court limits damages to nominal amounts due to overlap with other recovery.
- Compensatory damages are not invalid merely because they require estimation; they must rest on reasonable inferences from evidence rather than conjecture.
- Punitive damages in tort require proof of oppression, fraud, or malice and must be reasonable in relation to compensatory damages and the defendant’s financial condition; trial courts may reduce excessive awards through remittitur, and appellate courts generally defer when discretion is properly exercised.

## Conclusion

The court sustained findings that MGM was bound by negotiated deal-memo terms and that its retaliatory, coercive conduct supported tort and fraud liability, while approving substantial compensatory recovery and a reduced punitive award to keep damages within lawful limits.


Smithers v. Metro-Goldwyn-Mayer Studios, Inc., 139 Cal. App. 3d 643, 189 Cal. Rptr. 20 (Ct. App. 1983)