Gerritsen v. Warner Bros. Entertainment Inc.

District court dismisses breach of contract and breach of guaranty claims in first amended complaint against Warner Bros. based on Oscar-winning motion picture "Gravity," holding that plaintiff Terry Gerritsen, author of novel by same name, failed to plead facts tying Warner Bros. to underlying contract for movie rights to Gerritsen's novel, and striking new claims for breach of covenant of good faith and fair dealing because they exceeded scope of leave to amend.

In 1999, plaintiff Terry T. Gerritsen published “Gravity,” a novel set in “orbital space” about a female astronaut/doctor left alone on a space station after her crewmates die. Prior to the novel’s publication, defendant Katja Motion Picture Corp. entered into an agreement with Gerritsen to acquire the motion picture rights to her novel. Under the agreement, Katja would pay Gerritsen $1 million for the rights, plus a $500,000 production bonus and 2.5 percent of the net proceeds of the film, if the company produced a film based on the novel. New Line Productions Inc. guaranteed the “full and faithful performance” of Katja’s contractual obligations. In 2002, Alfonso Cuarón and his son wrote a screenplay called “Gravity” and, in December 2009, they granted all rights related to their screenplay to Warner Bros. Warner Bros. produced the screenplay, releasing the film — which grossed over $700 million in box office revenue and won seven Academy Awards — in October 2013. Gerritsen sued Warner Bros., Katja and New Line for breach of contract and breach of guaranty, alleging that Warner Bros. acquired control of Katja and New Line in 2008 and therefore assumed the obligations of Katja and New Line under the agreement with Gerritsen. The district court granted defendants’ motions to dismiss Gerritsen’s claims with leave to amend, ruling that Gerritsen could correct the deficiencies in the complaint but could not add new claims. Gerritsen then filed a first amended complaint, adding claims for breach of the implied covenant of good faith and fair dealing. The court granted the defendants’ motion to dismiss and struck Gerritsen’s new claims for breach of the implied covenant of good faith and fair dealing.

The district court found that Gerritsen’s theories of direct liability against Warner Bros., which were based on an alleged breach of the implied covenant of good faith and fair dealing, were “new claims” that exceeded the scope of leave to amend granted by the court. The district court then addressed each of Gerritsen’s theories of indirect liability — successor-in-interest, alter ego and agency — in turn.

First, the court concluded that Gerritsen’s allegations were conclusory and failed to support a claim for liability against Warner Bros. based on any of the four theories of successor-in-interest: (1) explicit or implied assumption of liability; (2) the occurrence of a de facto consolidation or merger of the defendants; (3) that Warner Bros. was a “mere continuation” of Katja and New Line; or (4) a transfer of assets “for the fraudulent purpose of avoiding liability.” Likewise, the district court rejected the application of the alter ego doctrine. It found that Gerritsen’s allegations of a “unity of ownership and interest” among the defendants were entirely conclusory and that she had not alleged facts that Warner Bros. “manipulated” Katja’s and New Line’s assets and liabilities so that it owned or controlled all assets of Katja and New Line, or commingled those companies’ assets with its own. Moreover, Gerritsen had not plausibly pled that an inequitable result would follow if the corporate separateness of the defendants was upheld.

Finally, the district court concluded that Gerritsen did not plausibly allege a theory of agency liability, finding that she failed to plead any facts that Warner Bros. had any sort of legal relationship with New Line and Katja during the time that they purportedly executed the contract and guaranty in 1999. It also pointed out that there were no allegations concerning the companies’ relationship with Warner Bros. prior to 2008 when they were purportedly consolidated with Warner Bros. The district court noted that California courts have not imposed liability on an agency theory where the apparent creation of the agency post-dates the transaction for which a party seeks to hold the principal vicariously liable. The district court granted Gerritsen leave to file an amended complaint, but again only to correct pleading deficiencies, not to plead any new claims.