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Anti-SAG-AFTRA Lawsuit Raises Many Issues, Targets Union Leadership (Analysis)

Foreign Royalties Defined

Foreign royalties (also called foreign levies) result from sums that collection societies in certain countries collect based on various government regulations. The societies then remit a portion of the U.S.-destined payments to the DGA, SAG-AFTRA and WGA for payment to individual “authors” (i.e., writers and directors) and performers -- both union members and nonmembers.

Another portion of the collected monies is paid to the U.S. studios or producers, who under U.S. law and customary entertainment contracts are deemed the authors of the movies, television shows and other audiovisual works at issue. The fact that monies are split between the studios and talent is a consequence of balancing the contrasting U.S. and foreign definitions of “author” and was arrived at in agreements between the guilds and studios in the early 1990s.

Foreign royalties are distinct from foreign residuals. The latter are computed according to the terms of the collective bargaining agreements between the unions and studios. As confusing as residuals -- and especially foreign residuals -- can be, foreign royalties are even murkier.

Specific Allegations

Among the current suit’s allegations:

* Pisano, White, Crabtree-Ireland Alleged Scheme. The complaint alleges that more than a decade ago, White, Crabtree-Ireland and then-national executive director Robert Pisano moved to diminish the union’s transparency: “Commencing in or about 2002, a scheme was concocted by various staff employed by SAG, including its then Executive Director, ROBERT PISANO, as well as members of its legal staff, including WHITE and CRABTREE-IRELAND, as well as labor consultant ROBERT HADL, all of whom have been traditionally aligned with the interests of management, to confuse the elected leadership of SAG and the membership concerning the role and fiduciary responsibilities of SAG, as a labor organization, in collecting, distributing and accounting for monies owing to performers.”

The union’s response: “The allegations are factually impossible. Crabtree-Ireland didn’t even begin working on foreign royalties issues until after White left SAG in 2006. The framework for the Foreign Video Levy Agreement was in place prior to White starting at the Guild in 2002. Pisano left the Guild several years prior to the beginning of mass distributions of foreign royalties. The only common interest among these three individuals was to do whatever they could to maximize the collection and distribution of foreign royalties to our members.”

* David White’s Alleged Connection to Marc Dreier. The complaint alleges, “Transparency in and accountability of Union finances is further warranted because of a blatant refusal to disclose expenditures or receipts involving the ENTERTAINMENT STRATEGIES GROUP (ESG) where DAVID WHITE was employed after WHITE departed SAG as its General Counsel in 2005 and from which WHITE returned to SAG to become its Interim National Executive Director, following the arrest of attorney MARC DREIER who controlled ESG. The sentencing alone of DREIER, now serving twenty years in federal prison for a variety of offenses, including investment fraud affecting numerous Union Funds, and the arrest of DREIER for impersonating a representative of a Teacher's Pension Fund in Toronto, California, (sic) alone warrants full disclosure, with certain Plaintiffs having reason to believe that WHITE did not divulge the full extent of ESG' s investment schemes, let alone to what degree WHITE and other former SAG employees may have if not continued to commit Labor Union funds to said ventures. In these regards, Plaintiffs note that following his return to SAG, and now as the National Executive Director of SAG-AFTRA, WHITE has ensured the funneling of continued consulting opportunities to SALLIE WEAVER who worked with WHITE at ESG and for which accountability has been actively resisted by WHITE.”

The union told The Hollywood Reporter that “this is another version of the periodic meritless and ridiculous personal attacks on the union’s leadership. It’s an attempt to depict a degree of connection (to Dreier) that simply did not exist.”

* Escheat Laws and Delaware Incorporation. Prior to merger, SAG was a California corporation and AFTRA an unincorporated New York association. In contrast, pursuant to the constitution and bylaws approved by members in the merger vote, SAG-AFTRA is incorporated in Delaware. The union’s leaders say this was in order to take advantage of features of Delaware corporate law that allow for greater flexibility in structuring the legal entity, SAG-AFTRA.

The complaint -- and merger opponents at the time the merger was being voted on -- charges a different purpose, arguing that the move was designed to allow the union to hold and control unclaimed residuals and foreign royalties that would otherwise have escheated (i.e., transferred) to the state under unclaimed property laws.

By incorporating in Delaware, says the complaint, the union avoids California law, and instead is subject to Delaware law. Since few SAG-AFTRA members live in Delaware, the effect of this according to the complaint is that no escheat laws are applicable where the majority of SAG-AFTRA members live, California, allowing the union to maintain control of unclaimed residuals and foreign royalties.

However, the union says an examination of California escheat law shows that this claim has no merit. First, the basic provisions of the escheat law -- Sec. 1510(a) & (b)(1) of the California Code of Civil Procedure -- say that California’s law applies when “the last known address of the apparent owner is in this state.”

That means that for unlocatable California members, the member’s state is what matters, not the union’s. The union’s domicile only matters for non-California members in some states and then only if the union hasn’t paid the funds to the other state.

Second, the union says that Sec. 1521 -- and a ruling by New York’s comptroller -- state that the escheat laws do not apply to residuals. That means, according to the union, unclaimed residuals of California and New York members did not escheat even when SAG was a California corporation. The situation under SAG-AFTRA is no different, says the union.

The California code section the union adverts to is not a model of clarity: that section speaks of “employee benefit plans,” not deferred wages (which is what residuals are) -- and then references “employee benefit plan distribution(s) in the form of residuals,” a phrase whose meaning is unclear on its face. Indeed, Wise pointed to the “employee benefit plans” language in email correspondence with THR.

However, the union provided THR with a copy of a March 30, 2005, letter from the California state controller’s office that appears definitive on this point as to California members. It says the office had reviewed residuals plan documents provided by SAG with reference to Sec. 1521 and concluded that “the unclaimed residuals owed to the Screen Actors Guild members under the Residuals Payment Plan are exempt and do not escheat to the State of California.”

Third, the union points out that it has staff who actively try to locate the owners of unclaimed residuals and foreign royalties, as well as a website listing the owners, whereas it says the state of California simply maintains a registry and website rather than making active efforts. For that reason, the union tells THR, the union does a better job than the state would. In contrast, the complaint alleges that the union hasn’t done the job well, and that an independent organization should be set up instead.

* Residuals and Foreign Royalties Staff. The complaint asserts without detail that SAG-AFTRA has “understaffed as well as placed individuals with questionable credentials in charge of ensuring timely distribution of Residuals and Foreign Royalties.” The union denies this, and adds that its hiring process includes skills tests and interviews.