Hollywood's Deflategate? 'Hannah Montana' Creators Fight "Perplexing" Arbitration

Most disputes in the entertainment industry are handled privately. Some say they've been denied due process.
Eric McCandless/Disney Channel

In Hollywood, there's a secretive judicial circuit where A-list actors answer for violations of moral clauses, where directors seek to uphold final cut authority and where movie producers and television showrunners fight for profits. It’s called arbitration. Most times, these disputes are buttoned up, but not always. Here is just such a case that has not only spilled into open court, it’s got the parties referencing NFL commissioner Roger Goodell's suspension of New England quarterback Tom Brady.

This particular dispute stretches all the way back to 2008 and involves Hannah Montana. What does a Disney children’s show starring a young Miley Cyrus — so successful that it spawned a movie, albums and a tour —have to with “Deflategate”? Well, the attorney for the creators is pretty much arguing that when Hollywood’s creatives accept contracts with mandatory arbitration clauses, they may as well be playing professional football under the dictatorial thumb of a capricious ruler.

Disney faced two arbitration demands over the series.

Show co-creator Michael Poryes filed the first. The other co-creators Barry O'Brien and Richard Correll (via Applebarry, Inc. and Fresh Air Taxi Cab Co.) pursued the second. Both complaints alleged a breach of contract over contingent compensation and sought an accounting. But the cases traveled in two different directions.

At a commercial tribunal at the American Arbitration Association, the parties dealt with bonuses to be paid out upon series milestones. There was a difference of opinion on whether a "rider" to a contract applied, how to interpret terms and whether any money was due. Ultimately, although arbitrator Martin Olinick found nearly $18 million in underreported amounts, Hannah Montana was still operating at a $24 million deficit so Disney didn't owe O'Brien and Correll. But the two creators were insistent that if the $300 million from movies and concert tour were included, plus merchandising revenue, plus money from internet distribution, there would be contingent bonuses. The arbitrator agreed with Disney that the movie, concert and merchandise revenue were to be excluded from defined receipts.

The present controversy deals with the evidence and testimony that Olinick wouldn't allow to be considered.

In Poryes' case, he apparently got a more generous arbitrator that allowed certain discovery, and at some point, Poryes and Disney settled with each other. Afterwards, O'Brien and Correll wanted access to the Poryes' documents, but Olinick refused to order Disney to compel this material. He also wouldn't allow certain witnesses and an accounting expert who testified in the Poryes case to discuss the contractual interpretation that happened there.

Here's where "Deflategate" enters the fray. 

"In National Football League, the court vacated an arbitration award because the claimant was denied the opportunity to discovery relevant documents and to call a key witness," states a March 11 brief from Neville Johnson, attorney for O'Brien and Correll. "There, Tom Brady, through claimant the National Football League Counsel, sought to vacate an arbitration award requiring Brady to take a four-game suspension after his alleged participation in deflating game balls and for his alleged failure to cooperate with a NFL investigation regarding the same. During the arbitration process, Brady sought to discovery all documents obtained or crated during the NFL Association's investigation of his case as well as documents regarding all prior incidents involving alleged or actual violations of NFL rules regarding tampering with equipment or failing to cooperate with an investigation. Brady also sought to compel the testimony of the co-investigator who investigated Brady's case. The arbitrator [Roger Goodell] denied these requests and ultimately ruled against Brady."

When this brief was written, the 2nd Circuit Court of Appeals had yet to overturn a lower court's decision vacating Brady's suspension as a result of a lack of due process. Before the 2nd Circuit effectively upheld Goodell's broad authority on April 25, there was newfound hope (even if happened across the country in a different circuit) that although courts are highly deferential to arbitrators, those participating in the arbitration process could expect fairness. That's profoundly important in Hollywood where profits disputes happen regularly and they most often take place in tribunals behind closed doors. Some attorneys assert that arbitration favors the studios.

For Disney's part, here's how it responded to the "Deflategate" citation.

"The NFL court did not apply the California Arbitration Act or any of the tests the Court is required to apply in this proceeding,"  Disney's attorney Christopher A. Elliott wrote on April 22. "Even by analogy, the NFL decision does not support Petitioners. In NFL, Brady was denied access to files relating to his own investigation and was not permitted to question his own investigator. By contrast, in this case, Petitioners sought materials relating to another writer's contract and a completely separate arbitration."

Three days later, the 2nd Circuit came out with its "Deflategate" decision. Brady has recently hired star appellate attorney Ted Olson and will probably seek a 2nd Circuit rehearing en banc. There's some talk in the legal community how the Brady case could make its way to the Supreme Court to present the issue of due process in arbitration hearings.

Meanwhile, O'Brien and Correll get ready to challenge unfairness they perceive from their own arbitration. On April 29, Johnson filed a new brief (acknowledging the 2nd Circuit reversal in a footnote) that practically begs for some instant replay at a June 7 hearing. The arguments probably amount to a Hail Mary pass at this point, given so much precedent where judges don't touch arbitration outcomes, but consider the cries to be a soft sign of some revolt afoot.

"The Court can see from the scheme set up by Disney how legitimate inquiry is thwarted," wrote Johnson. "If one can never see the documents, which may be incriminating, evenly deadly to Disney, then there is no chance of prevailing. Disney says the documents won't help, that's the end of the matter. You can never use what is on the other side of the wall if you can never see what is there. It's a brilliant tactical move and blatantly unfair ... For a case involving this many millions of dollars, the conduct of the arbitrator is inexcusable and perplexing."

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