Madison Miracle Prods., LLC v. MGM Distribution Co.

• Citation: 2012 IL App (1st) 112334,365 Ill.Dec. 399,978 N.E.2d 654
• Decision Date: 28 September 2012
• Docket Number: No. 1–11–2334.,1–11–2334.
• Parties: MADISON MIRACLE PRODUCTIONS, LLC, and Paradise Film Production Company, Inc., Plaintiffs–Appellees, v. MGM DISTRIBUTION COMPANY, Defendant–Appellant (Metro–Goldwyn–Mayer Studios, Inc., Defendant).
• Court: United States Appellate Court of Illinois

2012 IL App (1st) 112334

978 N.E.2d 654

365 Ill.Dec. 399

MADISON MIRACLE PRODUCTIONS, LLC, and Paradise Film Production Company, Inc., Plaintiffs–Appellees,

v.MGM DISTRIBUTION COMPANY, Defendant–Appellant (Metro–Goldwyn–Mayer Studios, Inc., Defendant).

No. 1–11–2334.

Appellate Court of Illinois, First District, First Division.

Sept. 28, 2012.

SNR Denton US LLP, of Chicago (Bernard J. Nussbaum and Natalie J. Spears, of counsel), and Sheppard Mullin Richter & Hampton LLP, of Los Angeles, California (Martin D. Katz, pro hac vice, and Dylan J. Price, pro hac vice, of counsel), for appellant.

Sperling & Slater, P.C., of Chicago (Greg Shinall, Scott F. Hessell, and Eamon P. Kelly. of counsel), and Michael A. Maciejewski & Associates, of Elmhurst (Michael A. Maciejewski, of counsel), for appellees.

OPINION

Justice ROCHFORD delivered the judgment of the court, with opinion.

[365 Ill.Dec. 403]¶ 1 Plaintiffs, Madison Miracle Productions, LLC (Madison LLC), and Paradise Film Production Company, Inc. (Paradise), filed the instant suit seeking both damages for breach of contract and an accounting against defendant-appellant, MGM Distribution Company (MGM Distribution), and defendant, Metro–Goldwyn–Mayer Studios, Inc. (MGM Studios). Plaintiffs' suit generally alleged that defendants failed to properly distribute “Madison” (the movie), a motion picture produced by Madison LLC. MGM Distribution, a Delaware corporation with its principal place of business in California, filed a motion to dismiss for lack of personal jurisdiction. That motion was denied by the trial court following an evidentiary hearing, and this court subsequently granted MGM Distribution's petition for leave to appeal that decision pursuant to Illinois Supreme Court Rule 306(a)(3). Ill. S.Ct. R. 306(a)(3) (eff. Feb. 16, 2011). For the reasons that follow, we reverse.

¶ 2 I. BACKGROUND

¶ 3 Madison LLC and Paradise filed their initial complaint in July of 2009. With respect to the parties, the complaint alleged that: (1) Madison LLC was a California limited liability corporation, while all of Madison LLC's members were “citizens of and domiciled in Illinois”; (2) Paradise was a Delaware corporation with its principal place of business in California; and (3) both MGM Distribution and MGM Studios were Delaware corporations with their headquarters located in California.

¶ 4 As to the merits, the initial complaint generally alleged that “Madison” was a movie shot on location in Indiana, Illinois, Washington, and California in 1999. The movie was produced by Madison LLC at a total cost in excess of $15 million. After the movie was screened at a film festival in 2001, Paradise expressed interest in distributing the movie on behalf of Madison LLC.

¶ 5 Specifically, in exchange for a fee, Paradise would arrange for the movie to be distributed by MGM Distribution. That distribution would take place pursuant to a preexisting “Distribution ‘Put’ Agreement” between Paradise and MGM Distribution. That agreement, executed in 1999, required MGM Distribution to accept up to six movies submitted by Paradise for distribution within the following five years. Such distribution could include arranging for an initial theatrical release, nationwide or internationally, and further distribution through other media outlets such as television, pay-per-view services, home video media (DVDs), and performances on airlines and cruise ships. Generally speaking, the agreement required MGM Distribution to “distribute each Picture in a commercially reasonable manner, consistent with the manner in which it distributes its own product of similar nature and quality.”

¶ 6 The complaint alleged that Madison LLC agreed with Paradise's distribution proposal, and MGM Distribution in turn agreed to accept “ Madison” as one of the six movies it was obligated to distribute pursuant to its distribution agreement with Paradise. These various agreements were memorialized in writing via: (1) the original 1999 distribution agreement between MGM Distribution and Paradise (the distribution agreement); (2) a 2004 agreement between Paradise and Madison LLC whereby Paradise agreed to submit “Madison” to MGM Distribution (the Paradise–Madison LLC agreement); and (3) a 2004 “PRODUCER/MGM P & A FUNDING AND DISTRIBUTION AGREEMENT” (the MGM–Madison LLC agreement) between MGM Distribution, Madison LLC, and Paradise, whereby MGM Distribution agreed to distribute “Madison” pursuant to its obligations under the original distribution agreement, and Madison LLC agreed to assume some of Paradise's obligations under that same agreement.

¶ 7 The complaint further alleged that while plaintiffs had fully performed their obligations under the contract, MGM ¹ did not live up to its obligation to distribute “Madison” in a “commercially reasonable manner” either before or after the movie's theatrical release in April of 2005. Plaintiffs asserted that “the marketing, release and distribution of the film was horribly mismanaged and grossly substandard, the DVD release and distribution [were] disorganized and inept, [and] there was (and continues to be) utter confusion over who at MGM (or elsewhere) is handling international markets and media.” Furthermore, plaintiffs contended that as a result of these failures, “a film which [Madison LLC] had invested $15 million to produce and market earned only $500,000 in box office sales—a small fraction of what Madison LLC reasonably would have been expected to earn had MGM met its obligations—and lost tens of millions of dollars in downstream royalties.”

¶ 8 More specifically, the complaint alleged that—pursuant to the various agreements—Madison LLC had an obligation to both deliver the fully completed movie and other materials to MGM in a specific format and to forward at least $1 million dollars (marketing funds) to MGM to be used for “Print & Advertising (‘P & A’) expenses” (marketing expenses). These marketing funds were to be used to support the initial theatrical release of “Madison.” Nevertheless, Madison LLC had the option to provide additional marketing funds to MGM in order to support the movie's chances for greater commercial success, and the complaint asserted that Madison LLC did in fact provide a total of $6.75 million in such funding. Additionally, and in conformity with its contractual obligations, Madison LLC also created a “Marketing, Promotion and Publicity Plan” (marketing plan) for the movie outlining how MGM should utilize the marketing funds provided. After completing its obligations, Madison LLC was entitled to the net proceeds that the movie generated from the exploitation of the movie through all of MGM's various distribution channels.

¶ 9 With respect to MGM, the complaint asserted that—in exchange for a percentage of the gross receipts generated by the movie—MGM was obligated to distribute “Madison” as it would one of its own films. The initial theatrical release would be in conformity with the marketing plan developed by Madison LLC, with that plan to be negotiated by the parties and ultimately approved by MGM. MGM was to exercise its approval power “in good faith.” MGM was also to distribute the movie through all of its other distribution channels following the initial release to theaters.

¶ 10 The complaint went on to allege that MGM breached its contractual obligations in many respects. Specifically, plaintiffs asserted that MGM: (1) refused to fully implement Madison LLC's proposed marketing plan, instead insisting on a “bare-bones release of Madison”; (2) insisted that the “iconic MGM logo” be removed from promotional materials that had already been prepared; (3) failed to ensure that promotional material and “trailers” for the movie were exhibited in movie theaters prior to the initial release in April of 2005; and (4) failed to coordinate with and otherwise frustrated a “grass roots” marketing and advance ticket purchase strategy separately arranged by Madison LLC. Plaintiffs contended that due to these failures, “Madison” was initially released “in only 15 markets on only 93 screens,” the theatrical release only lasted 21 days, and the movie only generated some $517,000 in ticket sales. Plaintiffs also alleged that “[t]he low box office numbers, caused by MGM's failure to perform, substantially compromised [the movie's] downstream distribution through DVD, international and pay television.”

¶ 11 Additional contractual breaches were alleged regarding MGM's actions with respect to those “downstream” distribution channels. Specifically, plaintiffs alleged that—due in part to confusion and mismanagement caused by various transitions in the defendants' overall corporate structure and changes in their distribution partners—MGM also failed to competently handle the distribution of the movie via DVD, national and international television broadcasts, and pay-per-view channels. These failures further contributed to the movie's lack of commercial success. Finally, plaintiffs alleged that MGM had failed to comply with certain accounting and auditing obligations contained in the parties' agreements, thus stymieing plaintiffs' efforts to determine both the scope of MGM's mismanagement and the amount of plaintiffs' actual losses.

¶ 12 Both defendants filed motions to dismiss plaintiffs' initial complaint, with MGM Studios bringing its motion pursuant to section 2–615 of the Code of Civil Procedure (Code) (735 ILCS 5/2–615 (West 2010)). MGM Studios complained that plaintiffs' complaint improperly referred to defendants generally and nonspecifically as “MGM,” and also failed to state a cause of action against MGM Studios because it was apparent from the agreements attached to the complaint that only MGM Distribution was a party to the operative agreements.

¶ 13 In turn, MGM Distribution filed a limited appearance and brought a motion to dismiss pursuant to section 2–301 of the Code (735 ILCS 5/2–301 (West 2010)). In that motion, MGM Distribution contended...