Morawski v. Lightstorm Entertainment

District Court Magistrate grants plaintiff’s motion to compel discovery related to defendants’ profits from motion picture Avatar, finding that defendants’ profits are an appropriate measure of damages for plaintiff’s breach of implied-in-fact contract claim under Ninth Circuit precedent interpreting California law.

Plaintiff Gerald Morawski brought suit against defendants, entities associated with the production and distribution of the 2009 blockbuster motion picture Avatar, asserting two breach of implied-in-fact contract claims based on his allegedly having met with director James Cameron and having submitted a one-page “conceptual summary” of a film project titled Guardians of Eden, which defendants allegedly used to make Avatar. Plaintiff sought discovery related to damages, including documents detailing profits from the film. Defendants asserted the discovery was irrelevant since plaintiff was not entitled to recover defendants’ profit but, at most, the market value of Guardians of Eden, as a measure of damages for an alleged breach of an implied-in-fact contract. After a hearing, the court granted plaintiff’s motion to compel the damages discovery, holding that, under Ninth Circuit precedent on damages for an implied-in-fact contract under California law, plaintiff was entitled to the discovery.

In its ruling, the court adopted the reasoning it set out in a previous order directing the parties to meet and confer in an attempt to resolve the outstanding discovery issues in advance of the scheduled hearing. In that Nov. 1, 2012, order, the court indicated that the discovery dispute centered around allowable damages for plaintiff’s breach of implied contract and agreed with plaintiff that he was entitled to discovery related to defendants’ profits from Avatar. “At this juncture, particularly during the discovery stage, information concerning profits appears relevant and necessary under the circumstances presented here.”

The court found the Ninth Circuit’s decision in Landsberg v. Scrabble Crossword Games Players, Inc., 802 F.2d 1193 (9th Cir. 1986), controlled on the issue of whether plaintiff might be entitled to a measure of lost profits as damages, rather than merely the market value of his work. In Landsberg, the Ninth Circuit held that the plaintiff, who had written an instructional book on Scrabble strategy, was entitled to the defendant’s profits from the publication of its strategy book, as a measure of damages for defendant’s breach of an implied-in-fact contract not to use plaintiff’s work without permission or compensation because the profits from the defendant’s exploitation of plaintiff’s work were the best measure of his loss – the inability to market his work as he saw fit. The district court noted that the Landsberg court also rejected the defendant’s arguments that profits were not a proper measure of damages either because third parties shared in some of the profits earned by the exploitation of the work and/or because the alleged “massive marketing power” of the defendant and the third party combined to result in far more sales that the plaintiff would have been able to accomplish on his own – arguments that the Avatar defendants had also asserted in the discovery dispute.

The defendants argued that even if profits were an appropriate measure of damages, plaintiff’s requests were overly broad and all plaintiff needed and should be entitled to were documents sufficient to establish defendants’ net profits from the motion picture. The court disagreed: “Net profit alone ... may not fully capture the entire mosaic of monies that flowed here.” The court also rejected defendants’ arguments that the confidentiality of the documents should shield them from production.