California Court of Appeal, Second Appellate District, April 8, 2009 (not for publication)

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  • Breach of contract, fraud, and breach of implied covenant of good faith and fair dealing relating to actor’s services in television series

Plaintiff Kevin Sorbo, former star of the popular television series Hercules, sued Universal for breach of contract, fraud, breach of implied covenant of good faith and fair dealing, and an accounting. The lower court found in favor of Universal on all claims, and the appeals court affirmed.

Sorbo claimed that during the fourth season of Hercules, he suffered an aneurysm and multiple strokes, allegedly caused by the grueling production schedule of the series, resulting in serious health concerns. Sorbo told Universal that he did not want to continue starring in the series. Universal allegedly induced Sorbo to star in the final two seasons by promising him significant compensation, resulting from the sale of the series for syndication. Sorbo starred in the final two seasons. At the end of the sixth and final season in 1999, Sorbo attempted to renegotiate his compensation package. According to Sorbo, Universal convinced him that his favored nations clause meant that he did not need to renegotiate his contract.

A few years later, Sorbo audited Universal’s books and learned that two producers of the show had earned $8,325,000 in advances against contingent participation while Sorbo had not received any contingent participation because the series had yet to show a profit. On Sorbo’s 2003 profit participation statement, the $8,325,000 payment was listed as a deduction from gross revenue for “Other Participations and Payments.”

Sorbo sued Universal for breach of contract, breach of implied covenant of good faith and fair dealing, fraud and an accounting. The lower court sustained Universal’s demurrer on the fraud and breach of implied covenant claims and granted summary judgment for Universal on the remaining claims. Sorbo appealed and the California Court of Appeal affirmed.

In order to state a claim for fraud in California, the plaintiff must plead the following elements: (1) a false representation as to a material fact, (2) knowledge of the falsity, (3) intent to defraud, (4) justifiable reliance, and (5) resulting damage.

Sorbo contended that (1) the Universal producers and executives made knowingly false representations that he “would make big money above and beyond his guaranteed compensation and would make a fortune on the backend,” when they knew that the series would never show a profit; (2) he detrimentally relied on the false representations by giving up his right to withdraw under the force majeure clause of the agreement; and (3) he detrimentally relied on a Universal executive’s false representation that he had the same “very favorable definition” of modified gross profit as the two executive producers of the series had.

Regarding the fraud claim, the lower court held and the appeals court affirmed that Sorbo failed to allege fraud because Universal’s statements about Sorbo’s future payments were too vague and uncertain to constitute misrepresentations of fact, and that Sorbo failed to show detrimental reliance. The court did not accept Sorbo’s argument that he gave up his right to invoke the force majeure clause of his contract (due to serious health problems) in reliance on Universal’s promise of increased compensation. According to the court, “[i]t is well established that the continued performance of a preexisting agreement does not support a claim of detrimental reliance.”

Regarding breach of contract, the lower court agreed with Universal’s argument that the favored nations clause applied only to the formula used to determine adjusted gross revenue and did not apply to the producers’ right to receive advances against contingent participation based on the producers’ success meeting production and budget goals. The lower court granted summary judgment to Universal because there were no triable issues of material fact on this issue, or any of Sorbo’s challenges regarding deductions for barter sales, foreign syndication, distribution fees, production costs, sales in New Zealand, rerun broadcast rights, and video advertising costs, and the appeals court affirmed. Regarding Sorbo’s claim of breach of implied covenant of good faith and fair dealing, the court held that such a covenant does not exist outside of the insurance context and that this claim was essentially the same as Sorbo’s breach of contract claim.