292 F.3d 992 (9th Cir. 2002), 00-55954, Chodos v. West Publishing Co., Inc.

Docket Nº:00-55954.
Citation:292 F.3d 992
Party Name:Rafael CHODOS, an individual, Plaintiff-Appellant, v. WEST PUBLISHING COMPANY, INC., a Minnesota Corporation doing business in California dba Bancroft-Whitney Company, Defendant-Appellee.
Case Date:June 07, 2002
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 992

292 F.3d 992 (9th Cir. 2002)

Rafael CHODOS, an individual, Plaintiff-Appellant,

v.

WEST PUBLISHING COMPANY, INC., a Minnesota Corporation doing business in California dba Bancroft-Whitney Company, Defendant-Appellee.

No. 00-55954.

United States Court of Appeals, Ninth Circuit

June 7, 2002

Argued and Submitted Dec. 5, 2001.

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[Copyrighted Material Omitted]

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Hillel Chodos, Los Angeles, CA, for the plaintiff-appellant.

Randall Kay, Gray Cary Ware & Freidenrich, San Diego, CA, for the defendant-appellee.

Appeal from the United States District Court for the Central District of California Audrey B. Collins, District Judge, Presiding. D.C. No. CV-99-04367-ABC.

Before BROWNING, REINHARDT and TALLMAN, Circuit Judges.

REINHARDT, Circuit Judge.

This case presents the question whether a publisher retains the right to reject an author's manuscript written pursuant to a standard industry agreement, even though the manuscript is of the quality contemplated by both parties. In this case, attorney Rafael Chodos entered into a standard Author Agreement with the Bancroft-Whitney Publishing Company under which he agreed to write a treatise on the intriguing subject of the law of fiduciary duty. The agreement is widely used in the publishing industry for traditional literary works as well as for specialized volumes. Bancroftr-Whitney thought that the treatise would be successful commercially and that it would result in substantial profits for both the author and the publisher. After Chodos had spent a number of years fulfilling his part of the bargain and had submitted a completed manuscript, Bancroft-Whitney's successor, the West Publishing Company, came to a contrary conclusion. It declined to publish the treatise, citing solely sales and marketing reasons. Like a good lawyer, Chodos responded by suing for damages, first for breach of contract, and then, after amending his complaint to drop that claim, in quantum meruit. The district court held that under the terms of the contract West's decision not to publish was within its discretion, and granted summary judgment in West's favor. Chodos appeals, and we reverse.

I. BACKGROUND1

Rafael Chodos is a California attorney whose specialty is the law of fiduciary duty.2 His practice consists primarily of matters involving fiduciary issues such as partnership disputes, corporate dissolutions, and joint ventures. Prior to being admitted to the bar in 1977, Chodos worked as a software engineer. Beginning in approximately 1989, Chodos began developing the idea of writing a treatise on the law of fiduciary duty that included a traditional print component as well as an electronic component that incorporated search engines, linking capabilities, and electronic indexing. Chodos sought to draw on both his legal and technological expertise, and was motivated in part by the fact that there was, and continues to be, no systematic scholarly treatment of the law of fiduciary duty.

In early 1995, Chodos sent a detailed proposal, which included a tentative table of contents, to the Bancroft-Whitney Corporation. Bancroft was at the time a leading publisher of legal texts. William Farber, an Associate Publisher, promptly

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responded to Chodos's proposal, and informed him that the Bancroft editorial staff was enthusiastic about both the subject matter and the technological features of the proposed project. In July, 1995, Bancroft and Chodos entered into an Author Agreement, which both parties agree is a standard form contract used to govern the composition of a literary work for hire.

The Author Agreement provided for no payments to Chodos prior to publication, and a 15% share of the gross revenues from sales of the work. Farber informed Chodos that a typical successful title published by Bancroft grossed $1 million over a five-year period, although Chodos's work, of course, might be more or less successful than the average. Chodos sought publication of the work not only for the direct financial rewards, but also for the enhanced professional reputation he might receive from the publication of a treatise, which in turn might result in additional referrals to his practice and increased fees for him.

From July, 1995 through June, 1998, Chodos's principal professional activity was the writing of the treatise. He significantly limited the time spent on his law practice, and devoted several hours each morning as well as most weekends to the book project. Chodos estimates that he spent at least 3600 hours over the course of three years on writing the treatise and developing the accompanying electronic materials. He did so with the guidance of Bancroft staff. For example, in late 1995 or early 1996, Farber instructed Chodos that because Bancroft viewed the book as a practice aid and not as an academic work, he should delete an introductory chapter that was primarily historical and disperse the historical material throughout the text, in footnote form. As Chodos completed each of the chapters, he submitted them to Bancroft on a CD-ROM; the seventh and final chapter was sent to the publisher in February, 1998. When finished, the book consisted of 1247 pages.

In mid-1996, Bancroft-Whitney was purchased by the West Publishing Group, and the two entities merged at the end of the year. The Bancroft editors, now employed by West, continued to work with Chodos in preparing the work for publication, although West did establish a management position that ultimately had a direct bearing on Chodos's career as a treatise-writer, that of Director of Product Development and Management for the Western Market Center. Between February and June, 1998, after the entire treatise had been submitted, Chodos reviewed the manuscript to ensure that the formatting was consistent and that no substantive gaps existed. In the summer of 1998 the West editors provided him with detailed notes and suggestions, to which he diligently responded. In November, 1998, West again sent Chodos a lengthy letter including substantive editorial suggestions related to the organization of the book. In early December, 1998, West sent Chodos yet another letter, this time apologizing for delays in publication, and assuring him that publication would take place in the first quarter of 1999. Burt Levy, who replaced Farber as Chodos's editor, informed Chodos that copy editors were preparing the manuscript for release in the early part of that year.

After receiving no communication from Levy in January, 1999, Chodos contacted West to check on the status of his treatise. On February 4, 1999, Chodos received a response from Nell Petri, a member of the marketing department. Petri informed Chodos that West had decided not to publish the book because it did not "fit within [West's] current product mix" and because of concerns about its "market potential."

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West admits, however, that the manuscript was of "high quality" and that its decision was not due to any literary shortcomings in Chodos's work.

The decision not to publish the treatise on fiduciary duty was made by Carole Gamble, who joined West as Director of Product Development and Management for the Western Market Center at about the same time that Chodos completed the manuscript. In late 1998, West developed new internal criteria to guide publication decisions. Applying these criteria, Gamble decided not to go forward with the publication of the treatise. She did not in fact read what Chodos had written, but instead reviewed a detailed outline of the treatise and the original proposal for it. Gamble did not prepare a business analysis prior to making her decision. After Chodos informed West that in his view the publisher had breached its contract, West did prepare an economic projection that concluded that the publication of Chodos's work would be an unprofitable venture. Thus, this legal action was born.

Proceedings Below

Chodos filed an action against West for breach of contract in Los Angeles Superior Court in March, 1999, shortly after the publisher's decision not to publish his work, and West removed the case to federal court on the basis of diversity jurisdiction. Chodos immediately moved for summary judgment, which was denied. Shortly thereafter, he amended his complaint to seek restitution on a quantum meruit basis and dropped the breach of contract claim. West moved to dismiss the amended complaint for failure to state a claim, and the motion was denied. At the conclusion of discovery, West moved for summary judgment, and Chodos sought to amend the complaint again, in order to add a claim for fraud. The district court granted West's motion and entered judgment in its favor; it simultaneously denied Chodos leave to amend his complaint.

II. DISCUSSION

Chodos makes two alternative arguments: first, that the standard Author Agreement is an illusory contract, and second, that if a valid contract does exist, West breached it. Under either theory of liability, Chodos contends that he is entitled to recover in quantum meruit.

A. The Author Agreement Is Not Illusory.

In support of his first argument, Chodos correctly notes that in order for a contract to be enforceable under California law, it must impose binding obligations on each party.3 Bleecher v. Conte, 29 Cal.3d 345, 350, 213 Cal.Rptr. 852, 698 P.2d 1154 (1981). The California Supreme Court has held that "if one of the promises leaves a party free to perform or to withdraw from the agreement at his own unrestricted pleasure, the promise is deemed illusory and it provides no consideration." Mattel v. Hopper, 51 Cal.2d 119, 122, 330 P.2d 625 (1958). Chodos contends that because the contract required him to produce a work of publishable quality, but allowed West...

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