Watch What You Say in L.A.
from
July/August 2005
bySusan Littwin
Martin Ransohoff, a veteran Hollywood producer, sued Paramount Pictures late last year, claiming that (then) studio chairwoman Sherry Lansing had reneged on an oral agreement to finance a movie. If the case ever goes to trial, potential jurors will no doubt be asked during voir dire if they believe oral contracts are valid. And at least one of them may say, “My daddy always told me it wasn’t a contract unless it was in writing.” And before much more happens, someone will recall the old movie mogul Samuel Goldwyn’s line, “A verbal contract isn’t worth the paper it’s written on.”
Sam was wrong. Under California law—and that of many other states—oral contracts are just as binding as 30-page documents from lawyers on the top floors of high-rise buildings. (Some contract categories, such as real estate, land transfer, and copyright, are exceptions.) But while oral contracts may be binding, lawyers say, they are not easy to enforce. Ronald A. DiNicola, a partner in the Los Angeles office of Mitchell Silberberg & Knupp, explains, “It must be demonstrated that there was a meeting of minds, that the parties have come to an agreement and intend to be bound”—for instance, that the fee, the time, and the conditions were agreed on. Also needed: some evidence of the agreement. Was there a witness? Did the parties behave as if an agreement had been made—for example, did the studio and producer exchange notes about who would star or write the script?
“Proving it is the hard part,” says Scott Edelman, a partner at Gibson Dunn & Crutcher in Los Angeles. “The question that always comes up is, ‘Why isn’t it in writing?’”
Yet Hollywood has a long tradition as a handshake town. “Deals for directors and actors are oral. It’s rare to sign a contract,” says Los Angeles entertainment lawyer Wayne Alexander. “A studio calls the agent for a major star, says we’re offering, say, $15 million, 10% of gross, usual perks, script and director approval. Gives him a time. They agree. At some point, he’ll get a draft contract. Some agents send a deal letter. Often they don’t. Meanwhile, the studio sends a long-form contract; the lawyers mark it up. There’ll be lots of comments back and forth, and another draft. The process will go on till everybody gets tired. Meanwhile, the movie gets made. A lot of the time [the contract] isn’t signed at all.”
Big stars have their own way of enforcing a promise that isn’t being kept: develop a headache and rest in your trailer while money burns on the set. But Hollywood has a cautionary tale for stars who give their word lightly. In the early ’90s, a company called Main Line Pictures claimed that Kim Basinger had made an oral agreement to star in a movie called Boxing Helena. The film was about a surgeon so possessive of a woman that he dismembers her. A story went around that an agent said something like, “Kim, the only thing you’ve got going for you as an actress is your legs, and they’re cut off at the beginning of the picture.” Basinger backed out, and the studio sued for breach of contract.
The trial helped make Main Line’s attorney, Patricia L. Glaser, a legend among Hollywood lawyers. No one considered the suit winnable, because juries tend to be starstruck and Basinger turned up in court looking heart-stoppingly gorgeous. “Patty hit a home run,” says entertainment lawyer Alan Gutman. “She told the jury, ‘Remember how the pretty girl in school always got whatever she wanted.’”
Glaser, a partner with Christensen Miller Fink Jacobs Glaser Weil & Shapiro, laughs when reminded of how she turned Basinger’s fame and beauty against her and says that the facts won the case. “I’d love to take credit for being a genius,” she says, “but the following is true: There were four drafts of the long-form agreement, and the fifth had gone out for signature.” Also, says Glaser, Basinger testified that she never committed to a movie without an agreement executed in writing—but, under questioning, admitted that there had been at least three instances in which she’d worked without a piece of paper.
Basinger lost and was ordered to pay about $8 million—the difference, Glaser says, between the film’s earnings with another, lesser-known star (Sherilynn Fenn) and the amount that pre-sales indicated the Basinger version would have earned.
But that’s Hollywood. What about the real world? Yes, you have to watch what you say, but corporate lawyers agree that oral contracts are expensive to litigate and to administer. Just what were the terms, and how do we prove it? Daniel Clivner, managing partner in the Los Angeles office of Simpson Thacher & Bartlett, laughs as he says, “My best advice to corporate boards is to put all oral contracts in writing.”
Should there be a corporate policy to that effect? Clivner says yes but notes that companies often operate under oral agreements in the area of executive compensation. For example, a top executive’s contract has expired, but they want him to stay on “at will” during the search for his replacement. Or a sought-after candidate asks for a trial period before binding himself. “It’s like any other business judgment,” says Clivner. “Is there a good enough business reason to do it?” But if you must make an oral agreement, he says, put something in writing: “Make a contemporaneous memo of what you believe the deal to be and file it. It’s not a signed contract, but it clarifies the terms and is evidence of the parties’ intent.”
Movie studios that have become part of larger corporations, such as Sony or Viacom, are beginning to follow those rules too. “They want at least something in writing now,” Edelman says. “There’ll be a deal memo or short-form agreement with the provision that they intend to enter into a long-form contract, but that this is binding even if they don’t.” Good corporate policy, as Samuel Goldwyn instinctively knew.
