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Recent Breach of Contract Lawsuit Against Michael Keaton Illustrates Measuring Expectation Damages

BatmanBatman has been sued.  Okay, not Batman, but the guy who played him, Mr. Mom and Beetlejuice in the movies – Michael Keaton.  In this lawsuit filed earlier this month in federal court in Illinois, the company that produced the movie The Merry Gentleman (if you’ve never heard of it, that’s the company’s point) alleges that Keaton breached agreements to direct and act in the movie by failing to deliver a satisfactory first cut of the movie on schedule, by working at cross purposes to the company by promoting his own cut of the film to officials of the Sundance Film Festival, and by failing to perform other post-production directorial duties or to assist in promoting the movie.  According to the company, if Keaton had performed his contractual duties, then the Christmas movie would have been released in time for the 2008 Christmas season, rather than May 2009, and, presumably, would have grossed more than the $350,000 than it did at the box office. 

Assuming that the company’s allegations that Keaton breached the contracts are true and assuming that Keaton’s breach (rather than market forces or some failure by the company) caused the movie to flop, what are the company’s damages?  This question is relevant not only to Keaton and The Merry Gentleman production company, but to all parties to a broken contract in which one party had promised to provide employment services to another party in exchange for compensation.  In other words, the question is relevant to all contractually-based employment disputes – a frequent topic on Suits by Suits.  The answer may not be what you think, especially if you think that, as damages, Keaton should just give back the compensation that the company paid him.

The company does not plead a damages amount but claims that its damages are “increased commercial costs and lost commercial opportunities” for the film.  This is another way of saying that the company seeks to recover its expectation damages – a standard measure of damages for breach of contract claims.  An award by the court of expectation damages would put the company in the same position as it would have been had Keaton performed as he was allegedly required to perform by the contracts.    

The Second Restatement of Contracts Section 347 gives the formula for expectation damages:

 Loss in Value (or value promised minus value received)

plus

 Other Losses

minus

 Costs or Losses Avoided

Applying the formula, the company may argue that it reasonably expected (we’re just picking a number) a $5 million profit if Keaton had performed as required by the contracts.  Instead, the company wound up with a $3.65 million loss (or the $350,000 that it grossed at the box office less the $4 million that the company claims to have invested in the movie, which amount should include $800,000 in compensation to Keaton that was specified in his contracts).  The Loss in Value (or $5 million value promised minus the -$3.65 million value received) would therefore be $8.65 million. 

The company may argue that it suffered other losses as a result of Keaton’s breach that should be added to the $8.65 million.  For example, if the company paid for additional publicity for the movie when it saw that Keaton’s publicity efforts fell short of his contractual obligations, then the cost of that publicity could be Other Losses that figure into the damages calculation.   If the company avoided any costs or losses as a result of Keaton’s alleged breach, then those would be Costs or Losses Avoided that reduce the damages number.  For example, if the company did not have to pay for a publicity event because Keaton (in breach of the contract) did not attend it, then the cost of that event would reduce the company’s damages.  

What about other types of damages?  Shrinking Keaton’s head, for example.  Punitive damages – which the company is not seeking – are a good topic for a future post.

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