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DEC
14
4 YEARS

EXCLUSIVE: Setback for 'Smallville' Creators in Warner Bros. Profits Lawsuit

smallville_2010

Writers and producers of Smallville have lost a round in their heated lawsuit against Warner Bros. over tens of millions of dollars in revenue generated by the hit CW series.

Los Angeles judge Michael Johnson on Monday granted a motion to dismiss key claims against Warners, which owns the long-running show about a young Superman, ruling that the studio does not owe a fiduciary duty to series co-creators Miles Millar and Alfred Gough and production company Tollin/Robbins Prods. While the case for breach of contract and breach of the implied covenant of good faith and fair dealing will continue, knocking out the fiduciary duty claim is a victory for the studio because such claims can give rise to significantly higher damages in profit participation cases. 

As we first reported in March, the Smallville creative team filed a breach of contract and breach of fiduciary duty complaint in Los Angeles Superior Court against Time Warner and its divisions -- WBTV, Warner Bros. Domestic TV Distribution, the now-defunct WB network, where the show started -- and the CW, a co-venture with CBS. The suit alleged that WBTV made sweetheart license fee deals with corporate siblings the WB and the CW that "were not arms-length," shortchanging the writers and producers by tens of millions of dollars.

Warners, in fighting the suit, employed a common studio tactic in profit participation cases, arguing that it doesn't owe any fiduciary duties -- and thus couldn't have breached them -- because the profit-sharing relationship for writers and producers on a TV show doesn't amount to a partnership or joint venture (or something "akin" to a joint venture), as required by law. Warners argued that the Smallville creative team wasn't contractually required to share losses on the project, only profits (plus fixed compensation), and the studio had the right to fire them at any time (albeit with a hefty financial penalty), meaning there was no joint venture.

Judge Johnson, in his Monday ruling, accepted Warners' theory, despite evidence showing the relationship was "akin" to a joint venture (whatever that means ... courts have never clarified) and that Tollin/Robbins' deal with WBTV was labeled a "venture agreement."

Warners "bore all the risk associated with the show and plaintiffs enjoyed guaranteed compensation regardless of success or failure," Johnson writes. "That is not an agreement to share losses under California law." 

“This is an important development in the case," Warner Bros. lead attorney Scott Edelman tells us. "The plaintiffs tried to establish a joint venture and a fiduciary relationship where none existed. We look forward to trying the case on the merits and are gratified by the judge’s ruling."

The plaintiffs' lawyer Dale Kinsella tells us he's planning to appeal the ruling.

“We respect the judge’s opinion but intend to pursue this matter further at the Court of Appeals," Kinsella says. "In any event, we look forward to trying the balance of the case to a jury of our clients’ peers.”

Even if the ruling is upheld, the case is still worth potentially tens of millions of dollars, so we'll keep following it closely.

One interesting side note to the ruling: Judge Johnson is openly skeptical of a recent ruling in the Who Wants to Be a Millionaire litigation between Disney and Celador that resulted in a massive $300 million-plus jury verdict for Celador. The Smallville plaintiffs cited the case as an example where an agreement to share profits was read to infer an obligation to share losses, thus giving rise to a possible joint venture. But, writes Johnson, "Celador is a trial court opinion that is not binding and is only persuasive authority. The Court finds it unpersuasive and contrary to controlling California law."

Disney's lawyers, still reeling from the Celador verdict, should probably take note when planning their expected appeal.