Maljack Productions, Inc. v. Motion Picture Ass'n of America, Inc.

Decision Date28 April 1995
Docket NumberNo. 93-7244,93-7244
Citation52 F.3d 373
PartiesMALJACK PRODUCTIONS, INC., Appellant, v. MOTION PICTURE ASSOCIATION OF AMERICA, INC., Appellee.
CourtU.S. Court of Appeals — District of Columbia Circuit

Appeal from the United States District Court for the District of Columbia Circuit (No. 90cv01121).

Robert B. Breisblatt, Chicago, IL, argued the cause for appellant. With him on the briefs were A. Sidney Katz, Julie A. Katz and Laurie A. Haynie, Chicago, IL.

Robert J. Shaughnessy, Washington, DC, argued the cause for appellee. With him on the brief was Richard M. Cooper, Washington, DC.

Before: EDWARDS, Chief Judge, WILLIAMS and ROGERS, Circuit Judges.

STEPHEN F. WILLIAMS, Circuit Judge:

Maljack, an independent movie and video production company, sued the industry's major trade association, the Motion Picture Association of America, for breach of contract. Maljack asserted that the Association's film-rating arm had discriminated against it because it was not a member of the Association. The district court dismissed the complaint under Fed.R.Civ.P. 12(b)(6) for failure to state a claim, holding that Maljack's assertions of discrimination--that its movie had received an "X" rating for violence, while more violent films produced by companies belonging to the Association had been given "R"s--were not adequate to allege a breach of the ratings contract. We reverse.

* * *

Maljack is an Illinois corporation primarily engaged in distributing videocassettes to the home market. Its first major venture into the production of general-release films came in the mid-1980s, when it produced Henry: Portrait of a Serial Killer, a movie depicting, in documentary style, the life of a fictional serial murderer loosely based on a person on death row in Texas. Maljack concedes that Henry contains several explicit scenes of physical violence, including depictions of two rapes and several brutal murders.

The Motion Picture Association of America is a New York-incorporated trade association consisting of many of the largest American producers and distributors of television programs and motion pictures. Maljack is not a member. Among its other activities, the Association operates the Code and Rating Administration ("CARA"), located in California, which reviews movies prior to their release and evaluates their suitability for viewing by children. At the time of the events at issue, CARA rated movies either "G," "PG," "PG-13," "R," or "X"--with the exception of the last, all federally registered certification marks owned by the Association. Submission of a film to CARA is wholly voluntary, and producers are free to distribute movies without obtaining an Association rating.

In March 1988 Maljack submitted Henry to CARA for rating and paid a fee calibrated to the film's production costs. CARA gave Henry an "X" on grounds of its violence. That marked it, according to the Association's published general description of the rating, as having an "accumulation of brutal or sexually connected language, or of explicit sex or excessive and sadistic violence" that rendered it "patently an adult film." A representative of CARA explained that four sequences in the movie were particularly offensive and would have to be cut before CARA would even consider giving Henry an "R," the next most restrictive rating. Maljack refused to make the cuts and instead appealed the "X" rating to the Association's Classification and Rating Appeals Board. The Appeals Board affirmed the "X" rating.

In February 1989 Maljack surrendered the ratings certificate for Henry and chose instead to distribute the movie unrated. Maljack alleges that the picture was not as successful as it would have been if the Association had given Henry an "R": a substantial number of movie theaters will not show films that either are "X"-rated or lack a CARA rating altogether. Maljack maintains that the Association denied Henry an "R" rating because it was a small, independent production company that did not belong to the Association.

Maljack filed a two-count complaint against the Association in May 1990. Count I asked the court to cancel the Association's registered certification mark for the "R" rating on the grounds that the defendant applied its ratings in an illegally discriminatory fashion; the trial court dismissed this count on jurisdictional grounds, and Maljack does not appeal that ruling. Count II alleged that the Association's discrimination breached a covenant of good faith and fair dealing implied by law in CARA's agreement to rate Henry for a set fee. The district court also dismissed this count, holding that the complaint was devoid of non-conclusory factual allegations capable of supporting an inference that the Association had acted unfairly or in bad faith. Maljack moved to amend its complaint, but the district court denied leave to amend on the ground that the proposed amended complaint suffered from the same basic flaw.

Maljack now appeals both the dismissal of its original complaint and the denial of leave to amend. We need reach only the first issue.

* * *

We review de novo the district court's dismissal of the complaint for failure to state a claim. See Henthorn v. Department of Navy, 29 F.3d 682, 684 (D.C.Cir.1994). At this stage of the litigation the plaintiff's burden is relatively light. "[A]ll the [Federal Rules of Civil Procedure] require is a 'short and plain statement of the claim' that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 103, 2 L.Ed.2d 80 (1957). We construe the complaint liberally in Maljack's favor, taking all the facts alleged as true, and giving Maljack the benefit of all reasonable inferences from those facts. See Henthorn, 29 F.3d at 683, 684; Kowal v. MCI Communications Corp., 16 F.3d 1271, 1276 (D.C.Cir.1994). At the same time, we are not to accept inferences drawn by Maljack if they are unsupported by the alleged facts, nor will we accept purely legal conclusions masquerading as factual allegations. See Kowal, 16 F.3d at 1276 (citing Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 2944-45, 92 L.Ed.2d 209 (1986)).

The parties and the district court have so far assumed that California law governs the rating agreement, and we will proceed on the same assumption. Cf. Hull v. Eaton Corp., 825 F.2d 448, 453 n. 7 (D.C.Cir.1987). Under California law, "all contracts contain an implied covenant of good faith and fair dealing [that] 'requires each contracting party to refrain from doing anything to injure the right of...

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