California Court of Appeal, Second Appellate District, March 4, 2013

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  • California appeals court affirms judgment in favor of Paramount in case brought by investor in No Country for Old Men, finding that, under New York law, investment agreement did not create joint venture relationship between the parties and that the terms of the contract unequivocally discharged Paramount of any fiduciary duties.

Marathon Funding, an affiliate of Morgan Stanley, sued Paramount Pictures in California state court over a deduction made by Paramount to Marathon’s share of the proceeds from the Coen brothers’ film No Country for Old Men. Marathon had a “Multi-Picture Investment Agreement” with Paramount to invest in a slate of 14 movies, one of which was the Oscar-winning picture starring Tommy Lee Jones. A drafting error in his contract gave Jones approximately $10 million more in bonus money than he was supposed to receive, and Paramount apportioned the error among itself and the investors in the film, deducting $2 million from Marathon’s share of the proceeds. Marathon sued Paramount in California state court, asserting Paramount breached its fiduciary duties in several ways, including by failing to catch the error in Jones’s contract and by not initially disclosing the reason for the $2 million deduction to Marathon. Following a bench trial, the trial court entered judgment for Paramount, finding that, under New York law, language disclaiming any fiduciary duty in the investment agreement was effective because the agreement did not create a joint venture. The trial court later granted Paramount’s post-trial motion for more than $690,000 in attorneys’ fees. On appeal, the California Court of Appeal affirmed the trial court’s decision, finding that the contract between the parties unequivocally discharged them of any fiduciary duties they might otherwise owe each other under New York law.

At the outset, the Court of Appeal determined that New York law applied to Marathon’s claim. Noting that under New York law, joint venturers are fiduciaries, the court found that the investment agreement did not create a joint venture with Marathon and Paramount, not only because the agreement stated in several places that the parties disclaimed any fiduciary duties or agency, trustee, and partnership relationships, but also because the agreement deprived Marathon of any control whatsoever over the motion pictures, a required element for formation of a joint venture under New York law. The court also found 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, all of which were enforceable under New York law.

The Court of Appeal also affirmed the trial court’s award of attorneys’ fees to Paramount under a provision in the investment agreement. The court rejected Marathon’s arguments that the language of the attorneys’ fees provision, awarding fees and costs to the prevailing party in “any action, suit, or other proceeding [that] is instituted concerning or arising out of this agreement,” was not broad enough to cover the tort claim for breach of fiduciary duty and that the amount awarded was excessive.