If James Madison were alive, the American founding father would probably have a strong view on whether the creators, writers and producers of Home Improvement are entitled to have a jury hear their claims of being denied a fair share of net profits earned by the series. After all, Madison authored the Seventh Amendment of the U.S. Constitution, which provides the right to jury trials in certain kinds of civil suits. In doing so, Madison stood up to Federalists like Alexander Hamilton and John Adams concerned about juries being overly sympathetic to debtors during post-colonial rule where the collection of taxes was needed.
This might all sound like ancient history, but echoes of the late 18th Century debate are certainly playing out as a 2013 profits lawsuit against Disney finally gets closer to trial.
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Wind Dancer Production Group and writer-producers Matt Williams, Carmen Finestra, Tam O’Shanter and David McFadzean are suing with the allegation that they’ve been cheated from a show starring Tim Allen that has generated $1.5 billion for Disney. The case has moved slowly thanks to an “incontestability” clause in the contract that required an objection within a specific time frame to profit participation statements. In a big decision that bolstered many “Hollywood accounting” cases, a California appeals court in 2017 revived the lawsuit with word that it was a triable issue as to whether Disney was prevented from asserting the incontestability clause due to such alleged conduct as delaying audits to prevent timely objection.
The case is now at the summary adjudication phase, and it’s possible that Los Angeles Superior Court Judge Amy Hogue may resolve everything herself sooner rather than later. Otherwise, the plaintiffs may head to trial — currently scheduled to begin on June 3 — with claims that include Disney breaching a written agreement by licensing the series in syndication in New York for nothing, packaging the series and then failing to allocate reasonable license fees, improperly charging a 40% distribution fee on basic cable revenue and improperly treating subscription video-on-demand revenue.
In court papers this week, the plaintiffs finally identified a damages target.
“Plaintiffs’ damages are in excess of $40 million, without interest,” write attorneys at Robins Kaplan. “With respect to Plaintiffs’ accounting claim, it is important to note that when Plaintiffs filed their lawsuits, many of Plaintiffs’ audit claims were unquantified because Defendants refused to provide documents and information to Plaintiffs’ auditors… Now, however, as a result of documents and information acquired since they filed suit and during discovery, Plaintiffs have been able to quantify the audit claims and intend to offer evidence at trial of Plaintiffs’ damages.”
That could be a significant passage.
Although the Seventh Amendment guarantees jury trials in civil suits, it’s one of the last important amendments not “incorporated” so as to apply to states. Maybe the Supreme Court will one day tackle a change, but until then, Disney is free to argue in state court that as a matter of equity instead of a matter of law, a jury needn’t be convened. What’s the difference? An equitable claim often refers to performance with remedies that include injunctions, while legal claims often demand monetary damages. The distinction, however, is not always clear and has been the source of significant fights. Going back to the days of Hamilton and Madison, many Anti-Federalists aimed to avoid as much as possible the system of equity commonly used by English Courts. And since then, plaintiffs typically like to be in state court because judges and juries are viewed as more plaintiff-friendly, but in doing so, they often have to wrestle with that equity issue that can deny them a jury.
James Madison might not care for Disney’s argument.
“The gist of these consolidated cases is equitable, and should be tried to the bench,” writes O’Melveny attorney Daniel Petrocelli. “As the very first paragraphs of Plaintiffs’ complaints make clear, the ultimate issue in these cases is whether Disney ‘failed to properly account to and pay Plaintiffs for their share of profits’ from the Series. Indeed, Plaintiffs readily concede that their claims cannot be adjudicated absent an accounting, and that an ‘accounting is required to determine the amount of revenues derived from the distribution and exploitation of the Series in order to ascertain Plaintiffs’ share of such revenues.”
Au contraire, responds the other side.
“The fundamental questions to be decided in these cases are what are the terms of the parties’ agreements, did Defendants breach those terms, and what are the Plaintiffs’ damages,” states the plaintiffs’ brief. “These are legal, not equitable, issues, and give Plaintiffs the right to a jury trial.”
The Home Improvement creators say they’ve now been able to quantify audit claims and have experts ready to testify about contractual interpretation.
Disney is “putting the cart before the horse,” continues the plaintiffs. “Resolution of the contract questions dictate whether an accounting is necessary, not the other way around… Plaintiffs will be seeking a sum certain at trial and do not anticipate needing an accounting. Yet, to the extent an accounting may be needed, it cannot even be possible until after resolution of the breach of contract claims.”
