Batfilm Productions, Inc. v. Warner Bros. Inc.

Brief Fact Summary.

Melniker, Uslan, and the two corporations that furnished their services, Batfilm Productions, Inc. and Franklin Enterprises, Ltd., (plaintiffs) sued Warner Bros. and Polygram (defendants), claiming Melniker and Uslan did not receive their fair net-profits compensation from Batman.

Synopsis of Rule of Law.

Unconscionability occurs when a determination that a contractual term was so procedurally or substantively unfair and offensive that the harmed party should be relieved from its consequences.

Facts.

Melniker and Uslan entered into an agreement with Polygram Pictures, Inc. (Polygram) (defendant) to develop and produce a Batman movie (Batman). Polygram later assigned the contract to Warner Bros. (defendant).Under the agreement, Melniker and Uslan were to receive 13 percent of the “net profits” of the film, as defined under the contract. Under the contract, the calculation of “net profits” included various overhead costs, tax credits for foreign taxes, sound stage holdover charges, only 20 percent of revenue from videocassette distribution, and interest charges on production costs. Melniker, Uslan, and the two corporations that furnished their services, Batfilm Productions, Inc. and Franklin Enterprises, Ltd., (plaintiffs) sued Warner Bros. and Polygram, claiming Melniker and Uslan did not receive their fair net-profits compensation from Batman.

Issue.

Whethera contract must shock the conscience to be void for unconscionability.

Held.

In this case, the fact that Warner Bros. and others earned millions of dollars on Batman while the plaintiffs did not may make the contract unfair, but it does not mean that it was unconscionable. The plaintiffs have failed to prove that the agreement, as a whole, is unconscionable. Further, the plaintiffs have also failed to show that any part of the contract is unconscionable.The plaintiffs also failed to show that it was unconscionable for Warner Bros. to deduct foreign taxes in calculating their net profits, because there is no evidence that Warner Bros. received any tax credits for foreign taxes paid on the movie, nor is there evidence that the sound stage holdover charge is not a proper cost of the movie. The plaintiffs also did not prove that limiting consideration to 20 percent of revenue from videocassette distribution unconscionably exceeded the actual net revenues from videocassette distribution or that they could have negotiated a better deal elsewhere.Warner Bros. showed that the interest provision is the same as a provision included in an earlier contract with the plaintiffs and that the plaintiffs would not have been able to get a better deal on the calculation of interest. The contract and the definition of “net profits” under the contract are therefore not unconscionable.

Discussion.

A contract is not void on the ground of unconscionability unless it is so harsh, oppressive, and unduly one-sided that it shocks the conscience. Under § 1670.5 of the California Civil Code, a court may refuse to enforce part of a contract if that part is unconscionable. The plaintiffs failed to show that any part of the contract was unconscionable.