11:44am PT by Eriq Gardner
AMC Resists Frank Darabont's Inquiry Into 'Fair Market Value' of 'The Walking Dead'
On Friday, AMC foreshadowed its main line of defense in a lawsuit brought by The Walking Dead creator Frank Darabont and his agents at CAA.
The fired showrunner sued AMC in December over tens of millions of dollars in allegedly owed contingent fees. The basis of the lawsuit is that AMC made a sweetheart deal licensing the show to itself, and thanks to AMC's claimed deficit of $49 million, the plaintiffs aren't seeing any profits.
In New York Supreme Court in February, AMC denied the allegations without getting into much detail about why it saw Darabont's lawsuit as a loser. But new court documents submitted in a sure-to-be-eventual discovery period indicate how this lawsuit is going to be fought.
As part of discovery, Darabont's lawyers want access to AMC's other TV deals, including those concerning Mad Men and Breaking Bad. Plaintiffs are seeking information such as license agreements, projections and Nielsen ratings because they believe it will inform a "fair market value" of The Walking Dead and thus, what AMC might have received had they paid an unaffiliated studio for the right to broadcast the zombie series.
AMC objects, and after casually tossing in a note that it has paid close to $3 million for Darabont's work on the first two seasons of The Walking Dead, speaks about why it sees such highly sensitive documents as irrelevant to the dispute.
Specifically, AMC addresses the "imputed license fee" set up to pay profit participants on The Walking Dead. It's a formula that the plaintiffs see as a sham "clearly designed to ensure plaintiffs never see that first dollar" of profits, but in AMC's eyes, it's an express part of the contract in determining how to calculate Darabont's backend.
"Here, the Parties agreed that AMC Studios would have the right to 'specify' this imputed license fee, so long as it was no less than what AMC Studios credited to other Series contingent participants," says AMC's motion brief (read here). "The parties later agreed that this imputed license fee and the remainder of Plaintiffs' MAGR ["Modified Adjusted Gross Receipts"] definition would be subject to good faith negotiation 'within customary basic cable television industry parameters consistent with AMC's business practices and [Darabont's] stature in the basic cable television industry as of [January 10,2011].' "
The argument that it's AMC Studios' right to specify the imputed license fee appears to be the one that the defendant hopes will doom Darabont's self-dealing claim.
Lest there be any doubt, AMC's lawyers add that Darabont's push for information about Mad Men, Breaking Bad and other shows is "irrelevant for the same reasons Plaintiffs' underlying claims fail: the Parties' Agreements contradict Plaintiffs' claim that Defendants were obligated to meet some nebulous 'fair market value' standard in connection with licensing the Series to AMC Channel. Those Agreements instead state that AMC would 'specify an imputed license fee in connection with AMC's license and rights to exhibit the Series on AMC and its related services.'"
AMC continues that in past negotiations with Darabont's reps to get the above contract language, it had to promise that it would not charge any distribution fees in connection with the imputed fee. Having divulged the $3 million that Darabont got for two seasons of Walking Dead work, AMC reveals another nugget -- that the worth of this supposed "give" on AMC's part is $7.2 million.
UPDATED: And just like that, Darabont's side is reacting to what it contends is an attempt to argue "bizarre contract interpretations during what should be a routine discovery dispute."
On Monday, plaintiffs' lawyers submitted a response (read here) that says that the "imputed license fee" must contractually be comparable to the fee achieved in negotiations between AMC and an unaffiliated studio for the right to broadcast a series -- with emphasis -- "comparable to" Walking Dead. They say the affiliated company provision isn't superseded by the "imputed license fee" provision and argue that the value of Walking Dead is relevant.
"AMC's sham 'negotiations' with itself never complied with its contractual duties to Plaintiffs," says the opposition letter. "The value of a series is of course highly relevant in any arms-length negotiations. … What AMC Network gave and obtained 'in similar transactions with unrelated third party distributors for comparable programs' is not only relevant to Plaintiffs' claims, it is foundational. … If AMC was correct that the imputed license fee was separate from and unconstrained by the Affiliated Company Provision, AMC could simply have imputed a license fee to the Series of $1 per episode, as long as it equally ripped off every other participant on the Series. However, the imputed license fee is expressly governed by the Affiliated Company Provision."