8:31am PT by Eriq Gardner
AMC Urges Judge to Reopen Briefing in 'Walking Dead' Profits Case
With hundreds of millions of dollars on the line and perhaps even the fate of The Walking Dead, AMC on Wednesday submitted a motion to allow for additional briefing at a key stage in a massive profits lawsuit brought by Frank Darabont and Creative Artists Agency.
Darabont, the director of The Shawshank Redemption and The Green Mile, adapted Robert Kirkman's graphic novel about middle American citizens coping in the aftermath of a zombie outbreak. But during the second season of the series, he was fired as executive producer amid tensions with AMC executives.
Along with CAA, Darabont would sue in 2013 and allege being significantly shortchanged of profit participation. Because AMC both produces the show and exhibits it on cable television, the big-money question in the case pertains to how to account for license fees when one side of a vertically integrated company works with another side. Darabont insists he has self-dealing protection in his contract that essentially means AMC had to book a fair market value for the show when calculating revenue. Given that The Walking Dead enjoys ratings on par with professional football games, that could be significant — as much as $30 million an episode, according to his experts. But AMC argues it has the right to impute any license fee so long as Darabont got treatment at least as favorable as other executive producers working with the company. The show currently imputes about $2.4 million an episode in broadcast license fees.
Last September, New York Supreme Court Justice Eileen Bransten heard oral arguments. She is now due to deliver a decision that could send the case to trial, and just as importantly, shake up the most popular drama in cable television history by potentially making it substantially less lucrative for AMC.
As the parties nervously watch the court docket for Bransten's ruling, Darabont and CAA filed a second lawsuit in January after an auditing of the show's financials. This second case also came after other Walking Dead profit participants, including Kirkman, filed their own lawsuit. One new allegation from Darabont and CAA stood out: They point to Kirkman's deal, which they say "requires that AMC use an actual license fee, rather than an imputed license fee...and that this actual license fee is subject to self-dealing protection."
In other words, if Bransten rules that the imputed license fee doesn't have to be fair market, Darabont and CAA may get a second bite at the apple by pursuing the alternative theory that thanks to a most favored nations clause, Darabont and CAA are entitled to similar accounting treatment as Kirkman.
So now, AMC tells the judge, "This case is at a crossroads," and that the second lawsuit presents a "problem."
"The pending summary judgment motions were prepared on an old record, one that does not account for the allegations in Plaintiffs' new complaint that bear directly on the issues teed up for summary judgment," writes AMC's attorney Orin Snyder. "The solution is easy: The Court should permit the parties to submit supplemental summary judgment briefs that address how the new lawsuit affects the pending summary judgment motions."
Is there really a problem? Or is AMC looking to buy time? In response to AMC's motion, plaintiff attorney Dale Kinsella tells The Hollywood Reporter that the motion "is filled with falsehoods and distortions and is just the latest stunt in its relentless effort to delay Mr. Darabont's case."
Kinsella doesn't elaborate on what he sees as distortions — that will come soon enough in court — but it probably have to do with how AMC is presenting the other side's arguments to buttress its request that summary judgment should be reopened.
Snyder opines that the two lawsuits overlap and that the second case includes new allegations that undermine arguments in the first case.
"For example, the contracts specify that Plaintiffs' contingent compensation should be calculated using an imputed license fee," he writes to the judge. "In their summary judgment briefs, Plaintiffs argue that the imputed license fee amount designated by AMC is too low because the imputed license fee is an actual transaction subject to the affiliate transaction provision in the contract. But in their new complaint, Plaintiffs seek to enforce the very document containing AMC's designated imputed license fee, contrary to their prior objection. Further, Plaintiffs advance a new theory for a higher imputed license fee, which depends on another person's contract. In making that argument, Plaintiffs now concede what Defendants have argued all along — that an imputed license fee is not a transaction between AMC affiliates, and is used only where no such transaction (and thus, no license) exists."
But that doesn't appear inconsistent with what Darabont and CAA were arguing all along.
They never said AMC couldn't use an imputed license fee nor that the imputed license was an actual transaction — only that it sufficiently represented enough of a "transaction" (they use quotation marks at certain points) to trigger AMC's obligation to book a fair market value for the show.
Here's how the plaintiffs put it in their summary judgment brief:
"When a media conglomerate such as AMC, Inc. employs a vertically integrated business model, however, the affiliated entities may not actually pay each other license fees, but rather may 'impute' a license fee into the studio's gross receipts that functions as a proxy or 'stand-in' for the domestic network license fee. That is what happened here. In the vertically integrated context, an affiliated studio obviously does not have the same motivation or leverage to negotiate with its sibling network for the highest possible license fees, and there is no arms-length negotiation. Absent protection for the profit participants, the imputed license fee added to gross receipts can easily be manipulated to reduce, or eliminate altogether, the profits to be shared with profit participants such as Darabont and CAA."
AMC wants the key issue in the $270 million lawsuit to turn on a literal interpretation of a single word. What Bransten now has to decide is whether supposedly contradictory claims merit further argument. AMC sees the second lawsuit as some sort of "evidence" of contradiction.
It's also clear that the developing feud between AMC and CAA shouldn't be underestimated. It's easy to put Darabont's name in headlines, but the blame for this lawsuit at AMC headquarters is being attributed to the powerful talent agency.
"CAA is up to its old tricks — trying to game the system and bend the rules to their advantage," says Snyder in a statement upon the filing of the motion. "The most powerful agents and dealmakers in Hollywood should not be allowed to pursue two separate lawsuits at the same time that make contradictory claims. All we are asking today is that the court hear all of the facts — including CAA’s moving-target allegations — before ruling on summary judgment."
Responds Kinsella, "Even a casual review of the papers shows that Judge Bransten's statement [at a hearing in late February] that this motion is a 'distraction' is more than accurate."
In fairness to AMC, while the judge did seem to call the motion a distraction, she also questioned why a second complaint was even brought. The final Walking Dead audits didn't go out until last fall, meaning the plaintiffs could have perhaps waited longer to file, say, after Bransten rendered her summary judgment decision. Thus, both sides may bear some responsibility for the delay. At this rate, the original cast of The Walking Dead will all be chewed by zombies before the case comes to a close.