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Maljack Productions v. Motion Picture Association of America

Court of Appeals for the D.C. Circuit
52 F.3d 373 (1995)
ELI5:

Rule of Law:

A complaint alleging that a contracting party applied different standards to the plaintiff than to similarly situated parties, based on an impermissible criterion such as non-membership in an association, is sufficient to state a claim for breach of the implied covenant of good faith and fair dealing.


Facts:

  • Maljack Productions, Inc. (Maljack), an independent film company, was not a member of the Motion Picture Association of America (the Association).
  • In the mid-1980s, Maljack produced a violent film titled 'Henry: Portrait of a Serial Killer'.
  • In March 1988, Maljack entered into an agreement with the Association's rating arm, CARA, by submitting 'Henry' for a rating and paying a fee.
  • CARA gave 'Henry' an 'X' rating due to its violent content.
  • Maljack alleged that other films produced by Association members, containing equal or greater levels of violence, had received the less restrictive 'R' rating from CARA.
  • Maljack refused to make the cuts CARA suggested would be necessary to consider an 'R' rating.
  • Maljack ultimately surrendered the 'X' rating and distributed the film unrated, which limited its commercial success as many theaters refuse to show 'X'-rated or unrated films.

Procedural Posture:

  • Maljack Productions, Inc. sued the Motion Picture Association of America in the federal district court (the court of first instance).
  • The complaint included two counts; Count I was dismissed on jurisdictional grounds and was not appealed.
  • The district court granted the Association's motion to dismiss Count II, which alleged a breach of the implied covenant of good faith and fair dealing, for failure to state a claim upon which relief can be granted (under Fed. R. Civ. P. 12(b)(6)).
  • The district court also denied Maljack's motion for leave to amend its complaint.
  • Maljack (appellant) appealed the dismissal of its complaint to the U.S. Court of Appeals for the D.C. Circuit.

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Issue:

Does a complaint state a sufficient claim for breach of the implied covenant of good faith and fair dealing when it alleges that a film rating association gave a non-member's film an 'X' rating while giving more violent films from member companies a less restrictive 'R' rating?


Opinions:

Majority - Stephen F. Williams

Yes. A complaint adequately states a claim for breach of the implied covenant of good faith and fair dealing by alleging disparate treatment based on an improper motive. Under California law, every contract contains an implied covenant of good faith, meaning a party cannot deliberately act to deprive the other party of the agreement's benefits. Maljack reasonably expected its film to be rated based on its content, not on its status as a non-member of the Association. The complaint's core allegation—that the Association gave 'Henry' an 'X' rating while giving more violent films from member companies an 'R' rating—alleges disparate treatment based on an impermissible criterion. While proving this claim will be difficult, at the pleading stage, these allegations are sufficient to support an inference of bad faith and give the defendant fair notice of the claim, satisfying the requirements of the Federal Rules of Civil Procedure.



Analysis:

This decision clarifies the pleading standard for claims involving a breach of the implied covenant of good faith and fair dealing, especially where subjective judgment is involved. It establishes that a plaintiff can survive a motion to dismiss by plausibly alleging disparate treatment, without needing to present direct evidence of the defendant's bad faith motive in the initial complaint. This lowers the initial barrier for plaintiffs in discrimination-style contract cases, allowing them to proceed to discovery where they can seek evidence to substantiate their claims of improper motive. The case underscores that even in agreements involving subjective evaluation, the implied promise of fairness prevents arbitrary or discriminatory application of standards.

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