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When the Writers Guild of America and eight individuals sued WME, CAA, UTA and ICM on April 17 in state court, they opened up a new front in the guild’s war against talent agencies and their decades-old practice of taking packaging fees from studios in lieu of commissioning writers and other clients. (Days later, in a further expansion of the conflict, over 7,000 WGA members fired their agents on orders from the guild via termination letters delivered April 22.)
Now the agencies will have to reply with their own legal filings and the usually fractious bunch could choose to file joint responses. The Hollywood Reporter has learned that the WGA’s attempt to splinter talent agencies has actually brought the top players closer together, with executives spending hours and days working together on a common mission — defending their core business practices (and very reason for being). That agency solidarity is quite a contrast from the firms’ usual sharp-elbow mode, which involves poaching clients and agents from each other with regularity.
On the legal front, after lengthy discovery and other pretrial maneuvers, the case may end up decided at trial by a judge (as the WGA’s complaint did not request a jury and its particular claims are probably not entitled to one anyway), and appeals are likely as well, unless the parties settle, which at present seems highly unlikely. It could all take several years, but meanwhile, here’s a reminder of the WGA’s claims — and a look at how the talent firms are likely to respond as they play both defense and offense. Expect a vigorous fight.
Writers Guild Claims
The guild’s complaint, filed in Los Angeles Superior Court, alleges that packaging fees are (1) a breach of state law fiduciary duty because the agency focuses on its own self-interest, not the client’s and (2) violate the state’s Unfair Competition Law and are an unfair business practice because they are an illegal kickback under federal labor law. The plaintiffs are seeking a declaration ending packaging fees and want all past fees disgorged.
Probable Agency Defenses
The agencies are likely to respond to the WGA’s claims with a blizzard of defenses. Most notably, they will probably argue that the case belongs in federal court, because the unfair business practice allegation is just a federal claim dressed up in state clothing: that is, the substance of the claim is grounded in federal law, not state. The agencies would probably prefer federal court because of a sense that appointed federal judges might be more business-friendly than their state court counterparts, who stand for election.
The agencies are also likely to argue that the case doesn’t belong in any court at all, but should either have been arbitrated under the 1976 agency agreement (which remained in effect for 43 years, until the WGA terminated it just days ago), or heard before the Labor Commissioner under the California Talent Agencies Act. Although those three arguments are divergent — federal court? arbitration? Labor Commissioner? — parties to litigation are allowed to make arguments “in the alternative.”
As a fundamental matter, the agencies will probably argue that the WGA has failed to state a claim — that is, even if one assumed facts most favorable to the WGA, the guild has failed to show a breach of duty or a violation of the anti-kickback law.
The agencies will also likely argue that the WGA has no standing, because it never paid packaging fees and has suffered no damages from agency conduct, and that it has no contractual relationship with the agencies (it “lacks privity,” in legal jargon) and so the agencies owe it no fiduciary duty. The WGA will likely counter that it has representational or associational standing to sue on behalf of its members.
Meanwhile, the agencies will probably concede that the individual plaintiffs have standing as regards their own past shows, but not as to other writers’ shows, since the case wasn’t brought as a class action. And the agencies will argue that even the individual plaintiffs have no standing regarding packaging of new shows, because they fired their agents and are thus no longer in business with the four defendants with regard to new writing.
The agencies can also be expected to interpose a series of defenses that go by the names consent, waiver, estoppel, preclusion, and settlement and release. These are variations on a theme, and stem from the fact that, to settle a 1975 lawsuit over packaging fees, the WGA acknowledged in the 1976 agency agreement that such fees are acceptable. The agencies will argue that that closed the matter and therefore the guild has no claims. In addition, the agencies are likely to argue that some of the individual plaintiffs knowingly consented to packaging fees.
The agencies will also likely argue that the plaintiffs waited too long to sue or, in legal terms, that some or all of the claims brought or remedies sought are barred by the applicable statute of limitations. The California statute of limitations for written contracts is four years and for oral contracts, two years, while New York has a six year statute for both. The agencies will thus likely argue that even if the court forces the agencies to disgorge packaging fees, the lookback should not exceed those periods.
But it’s not as simple as that sounds. Statutes of limitations are notoriously complex, and parties frequently dispute when the clock started, whether it was paused at any time (which is called “tolling the statute”) and whether seemingly stale events are so closely related to more recent conduct that it all should be deemed within the applicable statute. (Statutes of limitation can be complex in criminal cases too.) And all of this is not even to mention a related concept called laches, which functions as a sort of additional statute of limitations with even fuzzier rules.
The agencies will also probably assert that the WGA has “unclean hands,” a legal term that means the plaintiff itself did something bad. Unclean hands could doom a plaintiff’s claims, especially if they are founded in a branch of civil law called equity, as the WGA’s claims appear to be. That basis in “equity” is also why the guild’s claims are probably not entitled to a jury trial, since only “legal” claims, not “equitable” ones, are entitled to a civil jury trial. Explaining what that actually means would take a bit of a dive into legal history, since the law/equity distinction dates to old(e) England and it gets pretty wonky pretty quickly.
In any case, the basis for an unclean hands argument would likely include the agencies’ counterclaims against the WGA (see below) and an argument that the guild deceived and unduly influenced the individual plaintiffs and breached its labor-law duty of fair representation to them by issuing one-sided messaging about packaging fees.
In addition to impairing or even eliminating one or both of the guild’s claims in this way, the agencies may also argue that the attorneys who represent the WGA and individual plaintiffs have a conflict of interest — because the guild allegedly hoodwinked the individual plaintiffs — and that the attorneys should therefore be required to drop the individuals as clients, forcing the eight writers to obtain their own counsel at added expense (probably paid by the guild) and splintering the WGA’s presentation of the case. This move would represent a strategic attempt to scramble the deck on the WGA.
The agencies can also be expected to argue about damages. They will assert, as they already have, that writers save money and earn more with packaging fees because commissions are waived and because there’s no evidence studios would pay over packaging money to the plaintiffs. As a result, they’ll argue, the writers and WGA have no damages or damages that are too speculative — or that in any case must be offset by the waived commissions.
Finally, the agencies will likely point out that other agencies share packages with the top four, making them indispensable parties that the plaintiffs omitted as defendants.
For the reasons above, the agencies will conclude, all of the plaintiffs’ claims should be dismissed, but the WGA should be retained as defendant to the counterclaims below.
Probable Agency Counterclaims
Most of the defenses are just that — defense. But the agencies can be expected to play offense as well, and at the same time. In other words, they’ll bring counterclaims, in which they are the counter-plaintiffs and the WGA (or, less likely, even the individual writers) are the counter-defendants.
The most complex of these counterclaims is likely to be based on antitrust law. Case law acknowledges that entertainment and sports unions have the right the regulate agents, but this right exists within the scope of a limited exemption to the federal antitrust laws. The agencies will likely argue that the WGA’s attempt to prohibit packaging fees exceeds the scope of the exemption and thus violates antitrust law.
The agencies are also highly likely to bring claims of intentional interference with contractual relations and with prospective business relations. These claims would allege that the WGA sabotaged the agencies’ relationships with their clients, their employees (individual agents, whom the WGA said it would encourage to quit the major agencies), studios, managers, entertainment attorneys and other agencies.
Just as the WGA has brought an unfair competition / unfair business practices claim against the agencies, the agencies will probably bring one of their own against the WGA. This one would assert that the WGA solicited, aided and abetted managers and entertainment attorneys to violate the California Talent Agencies Act and a similar New York statute, both of which generally restrict procurement and negotiation of entertainment employment to licensed agents. The agencies will likely argue that this conduct constitutes and results in unfair competition and unfair business practices.
The agencies will also probably argue that the WGA breached two provisions of the 1976 agency agreement, one of which prohibits the guild and agencies from interfering in each other’s business and the other of which requires disputes to be arbitrated. They will likely also argue that the WGA refused to bargain in good faith, in violation of the implied covenant of good faith and fair dealing inherent in the contract.
In addition to bringing these various counterclaims in court, the agencies might bring related unfair labor practices charges before the National Labor Relations Board, but that largely depends on whether there is any real advantage to doing so, which there may not be.
The agencies could also bring conflict of interest counterclaims against several of the individual plaintiffs who also serve on the WGA’s negotiating committee, which theoretically should be focused on achieving a deal, not on suing the agencies for personal gain. However, the agencies probably will not do so, because the optics of suing their own clients are just too fraught.
Probable Writers Guild Responses
The WGA will counter every defense and counterclaim the agencies bring. The process will be time-consuming, the likelihood of a thorough early resolution seems low due to the complex facts, and the motions and legal briefs on both sides will be extensive and expensive. Litigators savvy in entertainment, labor and antitrust may be churning out filings for months to come while the industry watches and waits.
A version of this story first appeared in the April 14 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.
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