'Bones' Dispute Weighs Power of Judges and Arbitrators

In evaluating whether to uphold one of the largest arbitration awards in Hollywood history, a California judge will also decide how much authority the court has to keep arbitrators in check.

Earlier this year, an arbitrator levied one of the largest damages awards in Hollywood history against Fox in a dispute with the stars and creators of Bones — and now a California judge is poised to make a landmark ruling. 

Arbitrator Peter Lichtman concluded Fox executives lied, cheated and committed fraud at the expense of the show’s stars (Emily Deschanel and David Boreanaz), executive producer Barry Josephson and Kathy Reichs, who wrote the books upon which the series was based. He awarded $128 million in punitive damages on top of $32 million in compensatory damages, $10 million in prejudgment interest and more than $9 million in fees and costs.

Fox is asking L.A. County Superior Court judge Richard Rico to vacate the punitive damages award, claiming its contracts with the plaintiffs preclude that relief. Meanwhile, Josephson and company say the language is vague and the award should stand.

Rico on Monday heard lengthy arguments before taking the matter under submission. 

"Defendants locked themselves into having to live with the outcome," said the plaintiffs' attorney Daniel Saunders, noting that it was Fox that moved the fight to arbitration in the first place. He also says Fox didn't argue that the arbitrator couldn't award punitive damages until "the writing was on the wall."

Fox attorney Daniel Petrocelli disputed that claim and said the studio "unequivocally pointed out to the arbitrator that he lacked authority to award punitive damages."

At this point, the fight centers on what, exactly, Rico should be analyzing when he evaluates whether he has any power to vacate the ruling. The operating case law states: "The award will be upheld so long as it was even arguably based on the contract; it may be vacated only if the reviewing court is compelled to infer the award was based on an extrinsic source."

Petrocelli argued that such analysis is part of a second step — only after the court has evaluated whether the language of the contract was clear and unambiguous. Fox believes it is and, therefore, the rest doesn't matter. 

The section of the contract at issue relates to distribution through Fox affiliates, as the initial dispute centered on whether the company shortchanged stakeholders by licensing to itself at a lower-than-market rate. Here’s what it says: “Each of Company and Artist agrees that Company’s and Artist’s sole remedy against Fox for any alleged failure by Fox to comply with the terms of this paragraph shall be actual damages, and Company and Artist hereby waive any right to seek or obtain preliminary equitable relief or punitive relief in connection with any such alleged failure.” 

Saunders argued “Fox” specifically means “Twentieth Century Fox Television” and doesn’t extend to the parent companies, therefore any punitive damages limitation wouldn't apply to the other corporate defendants. Meanwhile, Petrocelli argued it’s clear the contract extends to the non-signatory affiliates, in part, because they were hauled into arbitration along with 20th TV. 

The bigger issue is exactly how much power Rico has here. 

The plaintiffs contend that Rico can only vacate the punitive damages award if it's clear Lichtman based his decision on anything other than the contract itself — and Saunders went as far as to say it "doesn't matter" if Lichtman made a legal error. 

Meanwhile, Petrocelli argued the contract limited Lichtman's authority, he exceeded his power, and therefore it's necessary for Rico to intervene. He said it would be a "perverse proposition" to strip the court of the ability to vacate the decision pursuant to California's code of civil procedure.

Rico will issue a written decision.