Locke v. Warner Bros., Inc

In Locke v. Warner Bros., Inc. (1997) 57 Cal. App. 4th 354, a movie studio had an agreement with actress Sondra Locke that gave the studio the right of first refusal over Locke's movie project proposals and the right to use her services as a director. When the studio declined to develop any of her proposals, Locke sued for breach of contract, claiming the agreement was a sham. The appellate court reversed the trial court's grant of summary judgment and held that a question of fact existed on whether the studio violated the implied covenant of good faith and fair dealing. The development agreement allowed the movie studio to make its own subjective creative decisions about Locke's movie proposals, and the court applied the general principle that when a condition of a promisor's duty is subjective satisfaction with the promisee's performance, the promisor is nonetheless required to exercise his subjective judgment honestly and in good faith pursuant to the implied covenant of good faith and fair dealing. ( Id. at pp. 363, 367.) The court found the rule of Carma and Third Story Music inapplicable because the development agreement "did not give the movie studio the express right to refrain from working with Locke. Rather, the agreement gave the studio discretion with respect to developing Locke's projects. The implied covenant of good faith and fair dealing obligated Warner to exercise that discretion honestly and in good faith." ( Locke, supra, at p. 367.)