CAA Answers Packaging Fees Lawsuit, Calls Allegations “Preposterous”

Scales Of Justice Gavel
Shutterstock

One day before the WGA and the Association of Talent Agents are set to resume their stalled negotiations for a new franchise agreement, CAA has filed its answer to a lawsuit brought by its former clients David Simon and Meredith Stiehm as part of the guild’s suit against the Big 4 talent agencies, calling their allegations “preposterous.”

CAA says it will respond to the guild’s allegations at a later date.

CAA
CAA

CAA and the other Big 4 Agencies – WME, UTA and ICM Partners – have until June 24 to answer the guild’s complaint. The WGA and the ATA have not met face-to-face since April 12, after which the guild will order all of its members to fire their agents who refuse to sign its new Agency Code of Conduct. The guild has demanded that any new deal must eliminate packaging fees and end agency ties to affiliated production entities.

As to the lawsuit’s individual plaintiffs, which includes several other writers, CAA said in its answer that it “generally denies each and every allegation” and “further generally denies that any of them are entitled to any relief.”

The lawsuit, filed in Los Angeles Superior Court on April 17, accused the agencies of violating state and federal laws by taking packaging fees on TV shows they packaged. The longstanding practice, the guild’s suit claimed, “Constitute unlawful kickbacks from an employer” in violation of the Taft-Hartley Act, which makes it unlawful for employers “to pay, lend, or deliver, or agree to pay, lend, or deliver, any money or other thing of value … to any representative of any of his employees who are employed in an industry affecting commerce.”

CAA’s answer to the suit says: “David Simon claims that he was harmed because of his inclusion in a packaging arrangement for the television series, Homicide: Life on the Street, which was produced over seven seasons between 1993 and 1999. In April 2000, after the conclusion of the final season, Mr. Simon complained to CAA about the packaging fees that CAA received with respect to Homicide. He claimed that as a first-time television writer (prior to the Homicide project he had worked only as a journalist), he was unaware of the existence of the packaging arrangements and packaging fees that CAA received for that series, and that he was harmed by that packaging arrangement. He and CAA resolved that dispute, and on May 4, 2000, in return for a payment of $30,000, Mr. Simon expressly released CAA in writing from any and all claims with respect to Homicide, specifically including any claims arising out of CAA’s packaging fees.

Six Democratic State Legislators Sign Letter Supporting WGA In Its Battle With Agents

“Thus, almost two decades ago, Mr. Simon waived and released any possible claims that he might have about packaging arrangements relating to Homicide. During the ensuing 19 years, Mr. Simon did not wish to be, and was not, included in packaging arrangements. Thus, the only injury that Mr. Simon alleges occurred more than 19 years ago, and after discovering that injury in April 2000, Mr. Simon expressly and specifically waived and released that claim. Thereafter, until the WGA ordered the mass firing of agents on April 12, 2019, Mr. Simon continuously retained his CAA agent, whom he admits has ‘been forthright and fair in all of my subsequent years in television.’ It could not be clearer that Mr. Simon’s claims are barred for many reasons, including the doctrines of waiver and release, and the lapsing of the statutes of limitations on any possible claims that he might have with respect to Homicide.

WGA ATA

Stiehm’s claims, CAA said, “are equally preposterous. She has known for decades that she was being included in television packages, and has repeatedly agreed in writing for 24 years that CAA, after helping her to secure employment on television shows, would receive prescribed packaging fees from the production studios instead of charging her any commissions. The first such instance occurred in July of 1995, when CAA secured employment for Ms. Stiehm on an ongoing packaged television series, Beverly Hills 90210. At that time, Ms. Stiehm acknowledged and authorized CAA to charge a standard packaging fee, which enabled Ms. Stiehm to avoid paying any commissions on her earnings from that show. Later, as CAA helped Ms. Stiehm land jobs on new series such as NYPD Blue, ER, and Cold Case, Ms. Stiehm repeatedly authorized CAA to receive the prescribed packaging fees on those television programs instead of charging her a commission for the agency’s services. She was also well aware that she profited from the arrangements that CAA negotiated on her behalf. The allegation that Meredith Stiehm was somehow deceived or disadvantaged by not having to pay 10 percent of her earnings to CAA in the form of commissions is certainly false, but, in any event, Ms. Stiehm, and her very sophisticated team of lawyers and accountants, have known for decades about every single packaging arrangement in which Ms. Stiehm participated.

Stiehm’s claims against CAA, which are confined to the Cold Case project, “have no merit whatsoever,” CAA said. “Prior to the Cold Case project, Ms. Stiehm had never served as a showrunner. CAA’s agents, in an effort to secure a showrunner opportunity for Ms. Stiehm, brought Ms. Stiehm together with another CAA client, Jerry Bruckheimer, to work on the development of the Cold Case project. Through the work of Mr. Bruckheimer’s production company, as well as Mr. Bruckheimer’s deserved stature and acclaim, CAA was able to present a very attractive project to the studio and help secure showrunner status for Ms. Stiehm. CAA closed Ms. Stiehm’s deal for Cold Case in March 2003. Ms. Stiehm and her representatives were aware at all relevant times that the show was being pitched as a package. Indeed, Ms. Stiehm was represented in the Cold Case negotiations by a very experienced entertainment law firm; her lawyer knew of the profit definitions applicable to the project, including the packaging arrangements, and actually proposed revisions to the profit definitions, which the studio accepted. At no point did Ms. Stiehm or her counsel object to the use of a packaging fee during those negotiations or during the ensuing 16 years before she joined the WGA in filing this lawsuit.

‘The Wire’ Creator David Simon Rips “Greedhead” Agencies Over Packaging

“During those years, Ms. Stiehm also knew that she was not being charged a commission on the Cold Case project. CAA initially charged Ms. Stiehm a commission fee for the pilot of the project, but, as is customary, once the series was ordered to production (at which point CAA became entitled to receive a packaging fee), CAA refunded the commission to Ms. Stiehm because CAA would be compensated solely by the packaging fee. Ms. Stiehm thus returned the check that had been issued after deducting the ten-percent commission and received in its place a check for the pilot without any commission charged. In fact, Ms. Stiehm never paid any commission to CAA on Cold Case, and she never asked that CAA forgo any form of packaging fee and instead charge her a commission. In addition, as part of the development of Cold Case, Ms. Stiehm received, as an additional benefit, a lucrative overall writer and producer deal with a studio. Under that deal, Ms. Stiehm was expressly informed that CAA was to receive a package per the studio’s standard definition. Ms. Stiehm expressly agreed to this arrangement, and was made aware of its existence by no later than 2006, when the agreement was revised.

“It is clear that Ms. Stiehm’s claims are barred for many reasons, including the doctrines of waiver and consent, and the running of the statutes of limitations on any possible claims that she might have with respect to Cold Case.”

Digging in for a lengthy and costly legal battle, CAA attorney Richard Kendall told the court in a separate declaration that the case should be designated a “complex case,” which the California Rules of Court defines as one requiring “exceptional judicial management to avoid placing unnecessary burdens on the court or the litigants and to expedite the case, keep costs reasonable, and promote effective decision making by the court, the parties, and counsel.”

He added, “If the WGA or the individual plaintiffs are allowed to pursue the action as currently alleged, the scope of witnesses and documentary evidence is potentially staggering.”

Kendall told the court that the plaintiffs’ first amended complaint (FAC) “alleges that a widespread, economically-important practice in the entertainment industry known as agency packaging, which has been a fundamental element of the television-production ecosystem for more than four decades, is illegal and must cease immediately. The plaintiffs are the two unions who represent writers in the entertainment industry (the “WGA”), and eight individual members of the union. The WGA alleges that it represents, and brings this action on behalf of, more than 14,700 individual writers who are its members. The defendants are four separate talent agencies, who are the largest talent agencies in the entertainment industry. According to the FAC, the lawsuit is brought ‘to end the Agencies’ … practice of packaging fees.’”

Here is more of what CAA attorney Kendall told the court:

Agency packaging in television is, in essence, the practice by which a talent agency participates in bringing together creative elements, which usually include one or more of the agency’s clients, of a potential television program. The FAC notes that ‘approximately 90% of all television series’ are now subject to packaging arrangements. When a talent agency participates in a package, it does not charge its client(s) the standard 10% commission. Instead, it receives a ‘packaging fee’ from the production company that decides to finance the program.

While agency packaging is a widespread practice, each deal within which ‘packaging’ arises is different, as the FAC itself alleges. Because ‘the entertainment industry is a freelance industry, and because writers may negotiate’ terms and conditions ‘above the minimum level’ established by the WGA’s collective bargaining agreements with studios and production companies, writers may—and generally do—negotiate terms and conditions above the minimum levels. This means that each negotiation is different, and that the terms of each individual writer member’s agreement vary based on the particular project and deal that was negotiated.

Despite the fact that agency packaging has been practiced for more than four decades in thousands of separate, individually-negotiated deals, each of which had separate negotiated terms, and involved individual writers, individual talent agents, and also (generally) third parties such as entertainment attorneys, and representatives of non-writer talent, plaintiffs seek to establish through this action that the separate deals constituted a breach of fiduciary duty, constructive fraud, and violation of the Unfair Competition Law as to thousands of individual writers.

Plaintiffs also make the entirely novel claim that agency packaging violates a criminal provision of federal labor law, Section 302 of the Federal Labor Management Relations Act (“LMRA”), an ‘anti-bribery’ law prohibiting payments from employers to labor unions. Based on these allegations, the Plaintiffs assert claims for breach of fiduciary duty, constructive fraud, and violation of California’s Unfair Competition Law (UCL). The WGA alleges that it can assert the fiduciary duty and fraud claims on behalf of thousands of writers who are or where its members over an undefined period, arising from their involvement in thousands of separately-negotiated transactions involving television productions and films. It also alleges that it can use the UCL to challenge the alleged injuries to the same thousands of writers. It has sought total, industry-wide relief.

[The WGA’s complaint] has asked to enjoin ‘each defendant agency from entering into new packaging fee arrangements in which one or more writer clients of the Agency works as a writer, or from receiving any monetary payments or other things of value from any production company that employs any writer client of the agency.’ The FAC demands that the agencies ‘provide an accounting of all moneys received by the Agencies in connection with projects or programs for which …WGA members were employed as writers.’ It seeks disgorgement of ‘all profits,’ industry-wide, generated from packaging fees. And it demands declaratory and other relief establishing that there was a breach of fiduciary duty and/or constructive fraud or a UCL violation in connection with each separate deal involving any WGA member (effectively, every writer in the entertainment industry) and a packaging fee.

To say that the action will involve numerous pretrial motions on difficult areas of law is an understatement,” he told the court. “I anticipate that each of the four agency defendants, including CAA, will bring pretrial demurrers and/or motions to strike challenging this unprecedented set of claims by the WGA and the individual writers.

Areas on which demurrers and/or motions to strike will likely be brought include, without limitation: (a) the WGA’s invocation of LMRA Section 302 to criminalize the common practice of talent agencies receiving some payments directly from production companies, which is to my knowledge the first time any plaintiff has ever attempted to invoke this federal criminal statute in a similar manner, and a theory which (if accepted) would criminalize a large swath of the entertainment industry and other industries; (b) federal preemption of the Plaintiffs’ UCL claim, to the extent it relies on LMRA Section 302; (c) the WGA’s ability to assert, on a theory of representational standing, fiduciary duty and/or constructive fraud claims on behalf of the thousands of writers involved in thousands of separate transactions in which “packaging” fees were at issue; (d) the WGA’s ability to use claims for breach of fiduciary duty and constructive fraud that it would not be able to bring on its own as “predicate” bases for a UCL claim; and (e) the Plaintiffs’ requests for disgorgement and punitive damages. While these motions should be sufficient to end the action at the pleading stage, as to the WGA if not all Plaintiffs, they unquestionably involve difficult and novel legal issues that will be time-consuming to resolve.

If the action survives beyond the pleading stage, pretrial motion practice will become more difficult, complex, and time-consuming still. Among many other issues, very significant issues about writers’ knowledge of and acquiescence in the “packaging” practice over many decades, and the applicability of the statutes of limitations, will come into play. This is especially true because the WGA expressly approved the ability of agencies to obtain packaging fees for decades, through a bargained agreement between the talent agencies and the WGA known as the Artists’ Manager Basic Agreement of 1976.

Thousands of individual writers (and their hundreds of separate managers, attorneys, and others involved in negotiating their contracts) made thousands of deals, all of which, according to the WGA, were illegal. The need for differentiated treatment of thousands of individual deals will likely require significant, complex, and differentiated motions for summary judgment, as well as (potentially) motions for judgment on the pleadings, for bifurcation, and for other issues. There will almost certainly also be significant discovery motions, as well as a wide array of other pre-trial motions.

The Plaintiffs allege that agency packaging, a practice common to thousands of separately-negotiated deals for the production of television programs (and, alleges the WGA, films) for decades is illegal because, in each individual transaction, there was a breach of fiduciary duty and/or constructive fraud. To prove and defend against these claims, thousands of separate transactions may need to be assessed for the supposed violation of fiduciary duty/constructive fraud, requiring exploration of each individual writer’s knowledge (and that of the entertainment attorneys, accountants, managers, and others advising the writer), disclosures made to the writer and her representatives by the individual talent agent, the financial characteristics of the deal, and so forth. While the WGA should not be able to pursue an action in this manner at all, and while CAA does not believe that in any event discovery of unduly broad and burdensome scope is appropriate or should be permitted even if the action is allowed to survive demurrer, it is no exaggeration to say that there is at least potentially a need for huge numbers of witnesses and a correspondingly huge volume of documentary evidence.

Each of the four defendant talent agencies will have its own counsel—and, of course, each agency may have many different agents involved in each individual transaction at issue, some of whom may obtain their own counsel. If the case is allowed to proceed there will also be a large volume of third party witnesses (e.g., entertainment attorneys, talent managers, accountants) each of whom is likely to have their own separate counsel. Coordination with related actions pending in one or more courts in other counties, states, or countries, or in a federal court. No related case outside of the Los Angeles Superior Court is currently pending. However, it is likely, given the complexity of the issues involved, that related proceedings will be pursued by one or more of the parties.

As shown above, Plaintiffs have asked for industry-wide relief in their FAC, including an injunction enjoining packaging as applied to the WGA’s membership (effectively, all writers in the entertainment industry). If such an injunction ever issues (and it absolutely should not issue), it may involve substantial post-judgment judicial supervision by the Court.

As noted, the action involves claims under the UCL. Accordingly, I believe that it is clear that this is an action that requires an extensive devotion of judicial time and resources, making a complex case designation appropriate.

This article was printed from https://deadline.com/2019/06/caa-answers-packaging-fees-lawsuit-calls-allegations-preposterous-1202628299/