The Academy Award-winning film No Country For Old Men has turned out to be a bad investment for one film investor after a major movie studio made a $10-million error: The Court of Appeals of the State of California has affirmed a judgment in favor of Paramount Pictures Corp, in a claim for breach of fiduciary duty brought by Marathon Funding LLC. Marathon entered into a contract with Paramount to invest in production and distribution of 14 movies, including No Country, the 2007 Best Picture-winner. The appellate decision makes for intriguing reading as it spells out details of a big picture’s millions in financing, including compensation for its stars and how legal errors get overlooked and then resolved. And, by the way, to add to the sting for the losers, they also got hit with defendant’s attorney fees — more than $690,000 with the recent ruling also offering glimpses of legal costs for cases like this.An accounting statement issued as part of the parties’ agreement included a $2-million deduction from Marathon’s account by Paramount to cover a $15 million pay-out to film star Tommy Lee Jones. A drafting error by outside counsel, hired by Paramount, gave Jones $10 million more than what he should have received in box-office bonuses. Marathon argued that Paramount should not have charged it with the error and sued it for breach of fiduciary duty, the obligation to act in the best interest of another party arising when a relationship involves a special trust, confidence and reliance on the fiduciary to exercise his discretion or expertise in acting for another party.
Marathon pursued Paramount under California law, contending the studio was a fiduciary because the parties’ executed investment agreement effectively created a joint-venture overriding contractual disclaimers of fiduciary duty. Marathon asserted that Paramount’s exclusive control over its funds also gave rise to a fiduciary duty.
A trial court rejected this argument and the California appellate court affirmed the decision, finding, first, that the trial court correctly applied New York — not California law — because both parties’ principal place of business was the Empire State and contractual language described how the agreement would be governed by New York laws.
Second, under New York law, for a joint venture to be formed, five requirements must be met: (1) two or more persons must enter into a specific agreement to carry on an enterprise for profit; (2) their agreement must evidence their intent to be joint venturers; (3) each must contribute property, financing, skill, knowledge, or effort; (4) each must have some degree of control over the venture; and (5) there must be a provision for the sharing of both profits and losses. Turning to the language of the contract, nothing in the investment agreement showed intent to create a joint venture but, in fact, several provisions disclaimed any fiduciary duties. The investment agreement also deprived Marathon of any control concerning the pictures. Thus, because these two requirements were not met, no joint venture was created.
The court added that any other potential bases for the existence of a fiduciary duty were negated by the investment agreement’s express disclaimers that no such relationship was created. Under New York law, explicit and unambiguous disclaimers of a fiduciary relationship are enforceable.