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'Borat' Judge Not Likely to High-Five Fraud Suit

The Hollywood Reporter, Esq. - 12/04/06

Three fraternity brothers walk into a bar. A Hollywood producer wants to use them in a movie, so he has brought them to a local watering hole where the bros run up a $180 tab -- which the producer will cover, of course. All he wants in return is for the guys to sign a standard release form and take a motorhome ride with an odd foreign journalist. Sounds like fun, right? And hey, what's a little contract among friends.

As most of the legal world knows, the controversy surrounding that fateful trip -- and the resulting scenes in the 20th Century Fox film "Borat" that show the boys to be racists, misogynists and, generally, jerks of the first magnitude -- is playing out in a Santa Monica courthouse, where the plaintiffs have filed suit against the producers and distributors of the picture. (A group of Romanians depicted in the film also has sued in New York.)

On one hand, the plaintiffs admit they knew they were being filmed (they could not reasonably deny it), they consented to use of their likenesses in a film and the words they uttered were their own. Yet they believe they were fraudulently induced into signing the releases, asserting, among other things, "diminished capacity" because of alcohol.

As currently postured, the case seems to address two threshold issues. First, whether there was a fraudulent, material misrepresentation about the scope of the release that would allow the plaintiffs to escape its binding impact. Second, whether their drinking "diminished their capacity" to the point where they were unable to provide legal consent to the release.

Fortunately for Fox and the producers of "Borat," the law clearly favors the defendants on all these points.

Fraud in the Inducement?
Fraud is a difficult proposition for any plaintiff. Generally, the claim requires proof that the defendant knew the truth and intentionally lied about it in order to induce the plaintiff's reliance and thereby secure a business advantage. The plaintiff also must show that he or she justifiably relied on the lies in entering into the agreement. If so, fraud can be the basis for an award of damages as well as grounds for rescinding an agreement that was fraudulently induced.

The "Borat" plaintiffs allege the producers lied in saying that the film would be released only in Europe and that it would not disclose their names or the names of their university or fraternity. They further allege that "at all times," the producer who spoke to them knew that the film was intended for a domestic release and that he intended to disclose the names of the participants and their identifying characteristics. Thus, the producers are alleged to have obtained a business advantage based on the false representations.

Of course, these representations are not in the written release, which provides that the producer may use "any recorded material that includes participant without restriction in any media throughout the universe in perpetuity" and which integrates any other agreements by providing that "participant is not relying on any promises or statements made by anyone about the nature of the film."

So, to a great extent, the claim is destroyed by the language of the release itself, which should have placed the plaintiffs on alert that the so-called "producer representations" were somehow defective.

While the presence of an integration clause and other representations in a written document signed by a plaintiff do not seal the issue as a matter of law, the courts invariably look first to the written word as an strong indicator of what really transpired. This was the result in Hinesley v. Oakshade, 135 Cal.App.4th 289 (2005).

In Hinesley, an unsuccessful plaintiff knew he was signing a document that stated there were "no outside deals." But he later claimed he had been duped by the fraud of the defendant and that there were "other promises." The very absence of the "additional promises" in the document led to a defense verdict.

Using Hinesley as a lead, and keeping in mind that one of the guys proudly wore a University of South Carolina cap, the "Borat" plaintiffs seemingly have no real basis for claiming justifiable reliance because the document told them there is nothing to "rely" on.

A Diminished Capacity?
Accompanying the fraud claim is a diminished capacity claim, wherein the plaintiffs allege that they were "too drunk to understand what they were doing when they signed the release." The plaintiffs submit this claim as an alternate to the fraud claim, apparently seeking to blame their onscreen conduct on their excessive drinking and invalidate the release as part of the process.

The attempt is not without legal support. According to Sections 38 and 39 of the California Civil Code, a person "entirely without understanding" has no power to make a contract and a person "of unsound mind but not entirely without understanding" may seek rescission of a contract.

But the plaintiffs here clearly were not "entirely without understanding" and were not of "unsound mind."

This is shown by their own declarations filed with the court, where they admit, among other things, that they remember the number of drinks they had; remember the amount of the bar tab; remember specific discussions at the bar; remember meeting director Larry Charles; and recall their specific thought processes and analyses ("I did not think I had anything to lose").

There are several decisions in California that probe the idea of "temporary diminished capacity." The most notable and certainly the most entertaining is Guidici v. Guidici, 2 Cal.2d 497 (1939), in which the California Supreme Court observed:

"A completely intoxicated person is generally placed on the same footing as persons of unsound mind. One deprived of reason and understanding by reason of drunkenness is, for the time, as unable to consent to the terms of a contract as are persons who lack mental capacity by reason of insanity or idiocy. A person who at the time of making a contract is completely intoxicated may avoid his contract notwithstanding the fact that his intoxicated condition may have been caused by his voluntary act."

Yet in Guidici, the evidence showed a complete lack of recall and mental capacity: The plaintiff was on a two-week drinking binge when he was taken by the defendant to Reno to get married; in Reno, she refused to get married unless he gave her the deed to his farm, and he did so; a neighbor testified that the plaintiff had been drunk and falling into ditches for two weeks before going to Reno; a bank cashier stated that the plaintiff was "wholly incapable of doing any business."

By their own allegations, the plaintiffs here fall far shot of the Guidici standard because they understood what they were told, kept a "drink count" and, as depicted in the film itself, carried on a cogent though uninhibited conversation with Borat.

There are two sides to every dispute, and in their papers, the Fox defendants deny the plaintiffs' version of events. But even if the plaintiffs' story is accepted as true, their fraud and rescission claims should eventually fail.

About the authors: Richard Charnley is a partner with Ropers Majeski Kohn & Bentley in Los Angeles and co-chair of the firm's entertainment group. He represents studios and producers and has litigated cases both for and against Fox. Arnold Sklar is an intellectual property litigator and partner in the firm's Los Angeles office, concentrating on trademarks, copyright, unfair competition, misappropriation and franchising.

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