Michael Keaton Prevails in the 7th Circuit

Actor and director Michael Keaton, who occupied the title role in “Birdman,” “Batman” and “Beetlejuice,” among other “B” movies, was also signed to direct and star in “The Merry Gentleman,” a 2009 release that met with a less than merry fate at the box office. In the aftermath of the film’s failure, the recriminations began, and the producer quickly zeroed in on Keaton.

The corporate producer, known as Merry Gentleman LLC, scripted out the alleged misconduct in a federal lawsuit filed in Chicago against Keaton and his professional contracting company. Keaton faced charges of breaching his directing contract by submitting a first cut that was late and incomplete, forcing the Sundance Film Festival to accept his director’s cut of the film instead of the cut preferred by the producer, failing to cooperate during post-production and failing to adequately promote the film.

For purposes of his summary judgment motion, Keaton, who received a paltry $100,000 to direct, did not challenge the substantive breach-of-contract allegations. Instead, he focused the court’s lens on Merry Gentleman’s evidence that his breaches caused the damages claimed.

It appears the plaintiff originally sought traditional “expectation damages,” which is an effort to receive the benefit of the bargain, or be placed in the same position as if the contract had been fulfilled. Merry Gentleman waived this theory of recovery in the trial court by not sufficiently responding to Keaton’s summary judgment argument and did not pursue it on appeal.

This left the alternative theory of “reliance damages.” Recovering a “reliance interest” in Illinois involves reimbursement for losses incurred by reason of relying on a contract that was breached. Rather than putting the plaintiff in the position of contract performance, “reliance damages” are intended to rewind the tape and place the plaintiff in the scene before the contract was ever made.

Merry Gentlemen sought to recover its entire $5.5 million cost of production from Keaton. The trial court, however, granted Keaton summary judgment on this theory too, a ruling the plaintiff appealed in Merry Gentleman, LLC v. George and Leona Productions Inc., No. 15-1195, (7th Cir. Aug. 25, 2015).

Writing for the 7th U.S. Circuit Court of Appeals, Judge David F. Hamilton recognized that while causation must be shown when seeking reliance damages, it carries a low threshold “because the injured party is forced to prove a counterfactual: What would have happened if the contract had not been signed in the first place.”

Reshooting movie scenes may be common, but attempting to restore contracting parties to their positions were no contract ever made often proves problematic. Of course, “If damages were easy to calculate, the injured party would likely have sought expectation damages to begin with.”

This is why courts follow a burden-shifting approach with reliance damages. Once evidence is presented sufficient to permit a reasonable trier of fact to determine the claimed losses resulted from the contract breach, it becomes the breaching party’s burden to prove the alleged losses would have been suffered even had it fully performed.

To address reliance damages, Hamilton reached back to Learned Hand, who noted that due to the difficulty determining “what the value of the performance would have been,” it is appropriate “in such situations to put the peril of the answer upon that party who by his wrong has made the issue relevant to the rights of the other.” L. Albert & Son v. Armstrong Rubber Co., 178 F.2d 182, 189 (2d Cir. 1949).

Even applying this framework, the burden doesn’t shift until the non-breaching party makes the threshold showing of causation. In cases where a defendant simply walks away from the contract, the causal link might be easily established.

Merry Gentleman’s case was complicated, however, by the fact Keaton had substantially performed, and the dispute was really over the quality of his work product.

Clearly, Keaton did not prevent the completion of “The Merry Gentleman.” It was undisputed he made the movie, it was screened at Sundance, released to the public and even received some critical acclaim. While the producer complained Keaton took too long to submit a first cut and failed to adequately publicize the film, it failed to show the causal connection between the breaches asserted and the total $5.5 million investment it sought to recoup.

Merry Gentleman asserted it would never have made Keaton the director nor spent millions on the film had it known he would fail to comply with his contractual obligations. Yet, no showing was made that the specific breaches asserted — “the failure to submit a first cut on time, submitting a revised cut that was incomplete, failing to publicize the film better, etc.” — caused its entire $5.5 million loss.

The 7th Circuit easily affirmed the finding that these actions did not cause the plaintiff to lose its entire investment. Merry Gentleman received some performance from Keaton and some income from the film, so awarding the $5.5 million reimbursement sought would wrongly place Merry Gentleman in a better position than had the contract never been made.

Keaton prevailed because the breaches claimed did not render the plaintiff’s investment totally worthless, while no claim was presented for a partial recovery. The court observed that “the relevant contract price” was seemingly Keaton’s $100,000 compensation, but Merry Gentleman inappropriately viewed reliance damages as insurance for its entire loss.

The case shows that efforts to use a reliance damages claim to obtain a windfall by shifting the entire risk of an enterprise to a defendant generally do not lead to a happy ending. Instead of seeking a more gentlemanly recovery, Merry Gentleman “decided to shoot for the moon and missed.”