Will and Jada Smith have responded aggressively to legal threats that they fraudulently induced someone to invest in their film project.
In 2007, Jada wrote a film, the “Human Contract”; Will produced it. They convinced David Grasso to invest in the film. He did with $5 million dollars. The film went straight to DVD. In January 2010, Grasso’s attorney threatened to sue the couple because they failed to guarantee Grasso’s investment. Grasso claims that the couple promised a high return on his $5 million dollar investment. So far, Grasso states that he only recouped $1 million of his investment.
In response to Grasso’s threats, the couple filed a lawsuit in California, asking a judge to declare that they have done anything wrong and are not liable for Grasso’s losses. This is called declaratory relief. Here is the complaint.
Of course this complaint was filed in California, so California law will decide who wins. However, let us pretend that the complaint was filed here, in Philadelphia (this is not a far-fetched fantasy… David Grasso, the defendant lives in Philadelphia).
It would be a tough for Grasso to win here in Pennsylvania because Grasso and the couple formed a limited partnership for the sole purpose of producing this film. Grasso played a management role and was involved in the operation of the business (according to the complaint). With partnerships, members share the profits and the losses. The law would only permit Grasso to recover his losses if he could prove that the Smiths breached their fiduciary duty and wasted the partnership’s assets. Based on the complaint alone, this doesn’t seem to be the case. The couple’s only duty to Grasso is to exercise the best business judgment under the circumstances.
The question on your mind, dear reader, is why would Will and Jada Smith file this lawsuit if they did nothing wrong. The answer is precisely because they do not believe they are liable for Grasso’s losses. The Smiths could have waited until Grasso sued them or they could make a preemptive strike and sue Grasso for declaratory relief. I believe they filed the declaratory relief to send a strong message to the industry. They will not be bullied–if you are going to send a letter threatening a lawsuit, then be sure to have the evidence to support your claim.
What can you, as a business owner, learn from this case? Seeking a declaratory judgment from a court is always an available option to you. In Pennsylvania, under the Declaratory Judgment Act, you may ask a judge to resolve your dispute as long as you meet the following conditions:
- A live controversy
- Involves a dispute for which a real remedy is available
The citation to the Pennsylvania Declaratory Judgment Act is 42 Pa. C.S.A. Section 7531. You may bring a declaratory judgment action to construe a contract either before or after a breach of the contract. A declaratory judgment is an ideal avenue if someone threatens to sue you for breaching a contract that you believe you are not responsible for. Otherwise, you must hold your breath for two years while waiting for that person to file a lawsuit against you.
Sharmil McKee | Business Lawyer | blog@mckeeoffice.com
