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Despite Fox’s expressed hope that the Bones legal dispute will draw to its conclusion, don’t expect that to happen any time soon. Not when there’s $128 million at stake on a single question with a yes-or-no answer. And not when what’s been happening is unprecedented in the annals of the entertainment industry.
In February, JAMS arbitrator Peter Lichtman leveled a head-turning $179 million punishment against Fox for what he called cheating, lying and “reprehensible” fraud toward the stars and executive producers of Bones. Lichtman concluded that Fox’s studio division had made sweetheart licensing deals with Hulu (which was part-owned by Fox at the time) and broadcast affiliates to the detriment of profit participants Emily Deschanel, David Boreanaz, Barry Josephson and Kathy Reichs. He awarded $51 million in actual damages and legal fees.
The question now: Did the arbitrator exceed his authority by including an additional $128 million in punitive damages?
On May 2, Los Angeles Superior Court Judge Richard Rico ruled that Lichtman indeed overstepped. Rico’s decision didn’t upset primary findings or take away actual damages. But given how the Bones talent agreements barred the recovery of punitive damages for any breach of contract, Rico wiped out more than 70 percent of the total award, a win for Fox lawyer Daniel Petrocelli. Observers can’t recall a past instance in entertainment where a judge overruled an arbitrator.
The Bones dispute now heads to a California appeals court, where three judges rather than one will look at the controversy. The parties will reprise familiar arguments. The Bones participants, through attorneys John Berlinski and Dale Kinsella, contend that Fox waived a challenge to punitive damages by bringing the case to arbitration and argue that the punitive bar doesn’t apply to the way that Bones was licensed to Hulu. The profit participants also say that even if Lichtman’s decision was legally erroneous, the arbitrator is afforded an enormous amount of leeway under the Federal Arbitration Act.
If anything is different at this new phase of the fight, it could be a greater emphasis on the issue of whether it’s legally permissible to contract around a fraud. The Bones stars and producers argue — and the arbitrator agreed — that precedent established that the punitive damages limitation was void because they couldn’t have agreed to something that was unforeseeable. A California appeals court may feel more latitude in addressing this issue.
Of course, now that both sides have experienced successes and setbacks in this legal fight, there’s always the possibility that rather than risk an all-or-nothing $128 million ruling, the parties will settle somewhere in the middle. But common ground will be difficult to find given the amount of money at play. What’s more, both sides have reason to maintain confidence after groundbreaking decisions. The dispute will be reviewed de novo, basically meaning with fresh eyes.
“I don’t think what happened is any indication of what will happen at appellate court,” says Larry Stein, a partner at Russ August & Kabat who has spent decades litigating many profit-participation disputes. “Although people always talk about percentages of cases overturned by appellate court — which is great, because this is an issue of first impression — there is not a lot of case law around this, and so I think you are going to have a fulsome review.”
This story appeared in the May 8 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.
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