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JUN
6
2 YEARS

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

A recent lawsuit filed against SAG-AFTRA by disgruntled members is structured as a direct attack on national executive director David White and chief administrative officer and general counsel Duncan Crabtree-Ireland, according to a copy of the suit obtained by The Hollywood Reporter

“The instant action was filed because SAG-AFTRA has resisted all efforts to obtain accountability and transparency in Union finances,” the plaintiffs' attorney Helena Sunny Wise told THR in an email. In that context, White and/or Crabtree-Ireland are portrayed as motivating forces behind an array of alleged improper practices relating to foreign royalties and residuals and are mentioned 49 times in the 52-page page document.

“To put it mildly,” Wise said, “inquiring minds want to know.”

“SAG-AFTRA is a very transparent organization,” Crabtree-Ireland responded in an email. “Public annual reports with extreme detail running to hundreds of pages are filed with the Department of Labor and the IRS and are available online to all. [In addition], the union has provided comprehensive information in related class-action litigation [filed by Ken Osmond] that resulted in a [judicially approved] settlement.”

He added, “The plaintiffs -- self-designated and not elected by anyone -- have nonetheless been offered access to review requested information, which they have declined to exercise. Instead, five months (later), the plaintiffs filed a lawsuit.”

Some cited grievances against White and Crabtree-Ireland date back to 2002, when White was general counsel of the organization under the leadership of then-national executive director Robert Pisano, and Crabtree-Ireland was on the legal staff.

White and Crabtree-Ireland are not named as defendants in the suit, but they probably will be: The complaint (read it in full here), filed on behalf of former SAG president Ed Asner and others, seeks court permission to add “the appropriate offending officers, employees, agents, Consultants, and representatives of SAG-AFTRA” as defendants.

The sheer length of the complaint and breadth of its assertions all but guarantee a lengthy and expensive litigation process. For that reason, THR is presenting an extended analysis of the complaint and SAG-AFTRA’s response. Although many readers will find the detail mind-numbing, those who are concerned about the matters discussed will, we hope, welcome the in-depth examination.

The thrust of the complaint is that the union has operated its foreign royalties program incompetently and in a manner designed to improperly funnel money into the union's general fund.

Crabtree-Ireland responded that this contention had already been raised in the prior Osmond case and said, “The whole reason for the existence of the foreign royalties program is to collect money and get it in the hands of our members, and SAG-AFTRA and SAG have done exactly that.” He added, “More than $15 million has been distributed so far to performers, and if the union hadn’t claimed those funds when we did, they would have been lost to our members forever due to foreign-collecting-society claim deadlines.”

The complaint also accuses the union of acting to “solidify and whitewash the collection, disbursement and retention of Foreign Royalties and Residuals.”

“Once accountability and transparency is achieved,” Wise said, “Plaintiffs will pursue all avenues for relief envisioned by Congress, the Department of Labor and the Judiciary, including, if appropriate, a housecleaning, reimbursement of inappropriate expenditures, and criminal sanctions.”

“The claim that the union is not being transparent is patently false,” Crabtree-Ireland fired back. “The fact that (the plaintiffs) ignored the opportunity to meet and instead simply filed a lawsuit demonstrates that they are not really interested in transparency, but rather appear to be interested in filing unnecessary litigation.”

The suit asks for an accounting, examination of books and records, injunctions, damages, punitive damages, attorneys fees and expenses and “establishment of an independent body to collect and pay all Foreign Royalties subject to Court supervision.”

The practices complained of in the litigation include issues related to last year’s union merger, union endorsement of residuals checks, delays in residuals processing, alleged failure to locate easily locatable residuals recipients and more.

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Earlier Litigation

The central allegations of the suit -- namely, that the union has improperly withheld funds and stonewalled requests for information about millions of dollars held in trust by the union, and that the union has no authority to collect foreign royalties -- are not unfamiliar. Whether Hollywood unions even have the right to collect foreign royalties, let alone on behalf of nonmembers and/or for movies and TV shows that aren’t under their jurisdiction, was the subject of three state-court class-action lawsuits -- one each against the DGA, SAG and WGA -- filed in the mid-2000s.

In essence, the unions contended that without their willingness to step up and take on the collecting and disbursement role, all of the collected monies would have gone to the studios and producers -- or have been retained by foreign collecting societies. Meanwhile, the plaintiffs argued that the unions cut a bad deal with the studios (i.e., that more or all of the monies should go to talent), that they had done a poor job administering, accounting for and disbursing the sums they do receive and that they had unlawfully retained a large portion of the foreign royalties due performers.

Those lawsuits were settled, with the unions permitted to make collections and disbursements, subject to reporting. Attorney Neville Johnson, who filed all three suits, says the process since then has not been smooth.

“The DGA is very closed and uncooperative in providing information … and is hostile to those making inquiries,” Johnson told THR. In contrast, he said, “the WGA seems to be making progress, but we’re getting anecdotal evidence that they’re uncooperative with members inquiring about payments.”

Regarding SAG-AFTRA, Johnson said that two consultants are just starting their examination of the union as part of a reporting process set up in the settlement of the Osmond case against SAG. The new lawsuit “raises very serious questions about SAG-AFTRA’s administrative process,” Johnson said. “We hope the plaintiffs are successful in opening the books and relevant agreements.”

Johnson is not connected to the new suit -- which, in fact, would effectively undo the Osmond settlement by requesting appointment of “an independent body” to collect and pay foreign levies received in the U.S.

Whether the latest suit, filed in federal court, is barred by the settlement of the earlier state-court action is likely to be hotly disputed. Wise told THR that unlike the new suit, the Osmond action was not filed under federal labor law, did not address residuals, did not “seek to enforce a member’s rights to accountability and transparency in Union finances” and did not encompass AFTRA’s finances. She suggested that these differences would insulate the new action from any preclusive effect of the old. In addition, a Sept. 11, 2012, letter from individuals who later became the plaintiffs to the union co-presidents said that “we the undersigned were either among the 31 performers who either opted out of the Osmond litigation or were never even given notice of the Osmond litigation.”

The union responded that “it’s incredible that anyone would think that yet another lawsuit rehashing the same territory would be helpful. All it will do is waste further member money and union resources on unnecessary legal fees and defense costs.”

In addition, the union said that only three of the plaintiffs had opted out of the Osmond litigation.

Litigation and Elections

Also an issue: The new suit “seek(s) to recover damages on behalf of members and non-members alike,” yet is not filed as a class action. The union told THR that this is improper pleading and said that the Federal Rules of Civil Procedure (FRCP) and case law make it clear that litigation is pursued solely on behalf of the named parties unless a class action under FRCP 23 is initiated.

In addition to Asner, the plaintiffs in the suit are Clancy Brown, George Coe, Tom Bower, Dennis Hayden, William Richert, Louis Reeko Meserole, Terrence Beasor, Alex McArthur, Ed O’Ross, Roger Callard, Steven Barr, Russell Gannon, Stephen Wastell, James A. Osburn, and Eric Hughes aka Jon Whiteley, who identify themselves collectively as the United Screen Actors Committee (USAC). Several are former SAG board members.

Although operating under a new moniker, several of the individuals have been plaintiffs in previous lawsuits against SAG prior to the merger with AFTRA. Hughes, who is also a WGA member, was an objector to the settlement of the state-court action against that union as well as an objector to the Osmond settlement.

Some of the USAC plaintiffs were associated with the SAG political group MembershipFirst, which controlled the union from 2005 through early 2009. It’s not known, however, whether USAC will operate as a political group in this year’s SAG-AFTRA elections, which are already in the early stages. Nominating petitions have been available since mid-May and are due back June 14. Candidate lists will be released several days thereafter, but until then the identity of candidates is not publicly known.

Given the timing, the litigation will likely be reflected in the election as an effort to tie the current elected leadership to the alleged issues surrounding foreign royalties. White was appointed as national executive director in January 2009 at a time when the union’s board was narrowly controlled by the same political groups -- including L.A.’s Unite for Strength -- that control the union today. That appointment came with the firing of then-director Doug Allen, who was identified with MembershipFirst. Three years later, the union membership voted 82 percent in favor of the merger, a stunning reversal of fortune for MembershipFirst.

“Our membership knows and understands what the union is doing, and our plans for the future have been validated by the overwhelming vote of the membership approving the constitution and merger plans,” said Crabtree-Ireland. “Historically, our members have expressed their collective frustration with people who try to use the legal system to interfere with our democratic processes.”

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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.

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* Failure to Locate People who are Allegedly Easy to Locate. The complaint asserts that SAG-AFTRA retains residuals owed to people who are easy to locate: “SAG (sic) leadership, including CRABTREE-IRELAND has sought to justify the burgeoning retention of Residuals on the premise that SAG cannot locate the heirs or estates of such well known entertainment and/or political icons as Frank Sinatra, John F. Kennedy, Larry Hagman or Sonny Bono, while lacking the ability to send checks owing to the parents of television personality Anderson Cooper, including his mother, Gloria Vanderbilt, or his now deceased father, Wyatt Cooper, let alone Ed Asner's son, Matthew Asner who is now the Southern California Executive Director of Autism Speaks.”

The union responds that “unclaimed funds can linger for high profile individuals (for) a variety of reasons, including:

“(1) If the individual is deceased, their estate can be subject to probate proceedings, there may be a dispute among heirs and beneficiaries as to who is entitled to the money, or the estate may simply be taking their time in providing us the necessary documentation to establish who is entitled to the money.

“(2) Family law disputes (divorces, conservatorships, other proceedings) can require us to hold funds pending the resolution of those issues.

“(3) Occasionally members will attempt to assign (sell) their interest in future residuals, and the buyer of those rights will attempt to claim the residuals despite a dispute from the member, raising legal issues under statutes like Cal. Labor Code Sec. 300. Such residuals must be held until the dispute is resolved.

“(4) Well known people may move or change representation and not tell us. Even when we locate them, we have to receive confirming documentation so we can be certain we are not sending substantial sums of money to an unauthorized person or address. Sometimes getting those documents back to us is not their highest priority, and the funds are held.”

In addition, according to the union, approximately 94 percent of SAG residuals checks on average are mailed to and received by performers in a given year, and 6 percent of the checks are undeliverable. The union said that corresponds to an average of 99 percent of the SAG residuals dollars mailed to performers annually, with 1 percent undeliverable. AFTRA-side figures were not immediately available.

* Diminution of Residuals and Foreign Royalty Payments. The complaint says that “not long after the DGA and the WGA were threatened with suit because of their withholding of Foreign Royalties, SAG grossly diminished its payment of Residuals and Foreign Royalties, if not suspended payments completely to mask an (u)lterior covert motive to stockpile as part of SAG's own assets undistributed Residuals and Foreign Royalties.”

Regarding residuals, the union told THR, “The dollar amount of residuals that come in the door is dependent on employment and distribution of projects. It’s a fluctuating number, with a general upward trend. Residuals checks are payable directly to the member, and they are processed as quickly as possible and mailed -- uncashed -- to the member. The member receives exactly the amount of money payrolled by the producer or distributor.”

Regarding foreign royalties, the union responded: “Since distributions began in 2007, we have been engaged in a continuous process of distributing foreign royalties as quickly as possible, and have gone from around $250,000 total distributed in 2007 to an aggregate total distributed since inception of more than $16.6 million today. The only diminution of the performers share of these sums is the Board- and Court-approved administrative fee of 10%. Note that members do not pay dues on foreign royalties collected for them by the union.”

The audited foreign royalties report shows disbursements increasing year over year, except for one year when both receipts and disbursements declined, and another year when disbursements declined by about $2,000. The plaintiffs dispute the nature and accuracy of the report.

* Growth of Trust Fund. The complaint asserts that “SAG has in turn converted Residuals and Foreign Royalties to its own use. …  As evidence of same, Plaintiffs note that in 2002, SAG reported on its LM-2, that it was holding only $12,085,425, in trust for its members. As of 2011, SAG reported on its LM-2 that said monies had grown to in excess of $95,205,672, while SAG-AFTRA, after one month of operation, purported that the sum being held in these regards, presumably in different accounts, was now in excess of $110,000,000.”

The union responded to THR that the amounts listed include funds held in trust for producers as well as residuals, foreign royalties and other deposits. The union added that all of the funds were audited by the external auditors each year including all the years in question and that growth in trust amounts is largely due to additional deposits for increased production activity and other factors.

* Unions’ “Wrongfully Endorsing” Residuals Checks. The complaint says that SAG-AFTRA wrongfully endorses residuals checks.

The union’s response is that since 1960, its collective bargaining agreement has provided for this; that its constitution and bylaws expressly authorize it (and that SAG’s did also); and that it only endorses checks when performers cannot be located, or there is a lack of clarity or dispute as to the beneficiary of a deceased performer or of a performer who has assigned his residuals income to another entity.

In these circumstances, the union told THR, failing to endorse and deposit the checks would allow the checks to go stale and become non-negotiable, meaning that new checks would have to be requested from the producer when the matter was resolved -- which could be years later. At that point, the producer might resist reissuing the check, or the producer itself (in the case of small entities) may no longer exist or be locatable.

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* Delay in Residuals Processing. The complaint asserts that the delay in processing residuals payments has increased three-fold (the complaint doesn’t say over what period). The union disputes that figure, stating that residuals processing took 45 days premerger and is at about 60 days now. That’s twice the union’s target of 30 days, but SAG-AFTRA says that merger required integrating two very different IT systems, SAG’s and AFTRA’s, and that the number of residuals checks received has more than doubled in five years, from 1.8 million checks per year in 2008 to approximately 4 million forecast for 2013.

* Relative Size of SAG/SAG-AFTRA Foreign Royalties vs. DGA and WGA. The complaint critically contrasts the amount of foreign royalties collected by SAG, which the complaint pegs at “less than fifteen million (dollars),” to the over 100 million dollars collected by each of the other two guilds.

Per the audited reports of each guild, the approximate total amounts collected are WGA $148 million (through FY 2012), DGA at least $92 million (though FY 2011) and SAG $23 million (through FY 2012). So the SAG figures are indeed substantially lower than the other two unions -- but the union says there’s a reason for that: International intellectual property treaties only recognize rights for “authors” (i.e., writers and directors), rather than for performers. As a result, said the union, fewer countries provide for royalties for foreign performers. The union added that the WIPO Beijing Audiovisual Performances Treaty would improve this situation, but that it is pending ratification and entry into force.

* First-Class Travel. The complaint asserts that “fiduciary duties owing to the Union membership (may) have been compromised because of the expenditure of Union funds on First Class travel,” and in an email to THR Wise was unequivocal: “The fact that the Labor Organization continues to pay for First Class Airfare while surrendering this benefit for its members in contract negotiations is disturbing and warrants further scrutiny.”

The union responded that “the union's practice is that no one travels first class at SAG-AFTRA's expense, except that the co-presidents are authorized to do so by the union’s travel policy, and business class travel is authorized under certain circumstances.”

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E-mail: jhandel99 at gmail dot com

Twitter: @jhandel