CAA vs. UTA, Corporate Raiding and the Ghost of Ed Limato (Analysis)

Hollywood Sign - H 2015
AP Images/Invision

Hollywood Sign - H 2015

The news Tuesday that a slice of CAA's agent roster is defecting to rival UTA — perhaps the biggest surprise agency shakeup since Ari Emanuel and his ICM cohorts founded Endeavor in the middle of the night exactly 20 years ago this month — is prompting big threats by CAA of a lawsuit against UTA and its former colleagues.

If the suits are indeed filed, would CAA have a case? According to multiple sources, at least three of the defecting agents — comedy powerhouses Jason Heyman, Martin Lesak and Nick Nuciforo — were under contract to CAA when they abruptly exited Tuesday morning just aThe Hollywood Reporter reported their move to UTA. At first glance, potential liability might seem obvious: Agents with contracts can't just up and leave without paying the consequences (and damages) for their refusal to honor their deals, just as an actor can't walk off a movie set without being held accountable, right?

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Perhaps not, and CAA, which sources say has just hired prominent employment attorney Anthony Oncidi of Proskauer Rose to represent the agency, likely will argue that the agents have brazenly breached their contracts. Other likely claims in a lawsuit that could come as early as Wednesday would be for unfair competition against the defectors and a claim against UTA for intentional interference with contracts. The latter argument would basically seek to hold UTA liable for inducing the CAA agents into breaching their contracts. In addition, if the defectors — there could be as many as 11 of them (and counting) as of Tuesday night — took with them any CAA documents, trade secrets or company data, or if they sought to recruit top clients such as Chris Pratt and Will Ferrell (who already have followed their agents to UTA) while still employed at CAA, there could be additional claims. Plus, CAA sources won't rule out a claim for civil conspiracy if UTA conspired with certain CAA agents to raid the company's talent from within its ranks.

That said, the law in this area isn't simple, and there is one particular example in the entertainment industry that should be somewhat alarming for CAA. Two words: Ed Limato.

Consider the case of the late legendary agent, who spent most of his career at ICM before defecting to William Morris in 2007, taking with him such clients as Denzel Washington, Steve Martin and more. Limato was under contract to ICM but when the agency tried to diminish his status, he argued, in effect, that his contract was "illegal" because it violated California's strict "seven-year rule" for personal services contracts. That law dates back to actress Olivia de Havilland's lawsuit against Warner Bros. in the 1940s for repeatedly extending her contract with the studio after "suspending" her for rejecting suggested roles. In 1944, the California Court of Appeal ruled that de Havilland — or any other actor, director or other talent in the entertainment industry — could not be subject to a contract to perform personal services beyond seven years from the beginning of the deal. The so-called "de Havilland law" fundamentally changed Hollywood, brought about the end of the old studio system and allowed talent agencies to amass power.  

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The seven-year rule is typically applied to talent, but in 2007, Limato claimed his situation was no different than de Havilland's because his deal was repeatedly re-upped beyond seven years. ICM, on the other hand, argued that Limato was free to leave at the end of any of the contract terms and chose to renegotiate (for hefty raises, of course). Those renegotiations should have re-started the seven-year clock, the agency argued.

ICM lost. Arbitrator Diane Wayne, who frequently handles entertainment disputes, relied on a federal case involving boxer Oscar de la Hoya and ruled that Limato's deal violated the seven-year rule, and he was free to leave. (He landed at William Morris and later died in 2010.) One common way for companies to try to sidestep the rule is to argue that new deals are negotiated every three years or so, rather than simply extending existing deals. But it's clear from both the de la Hoya and Limato cases that so-called "tacking" deals won't restart the clock. ICM also was forced to pay Limato's lawyer fees.

"They had locked Ed up and thought they had done it in a way that skirted the rule," Limato's late lawyer George Hedges told me for a column I wrote on the subject in 2007. "I think every (agency) is taking a beat now, looking at their practices."

Well, CAA probably is examining its practices, or at least its contracts file, since Heyman, Lesak and Niciforo have worked at the agency for longer than seven years. One CAA source downplays the applicability of the rule to the current situation, noting that neither agency would want to litigate that issue out of fear of potentially having to live with a ruling that could call into question all their deals with their agents. Or as veteran litigator Patty Glaser, who isn't involved in this case, tells me, "If anyone resists the seven-year rule, they better stay out of the path of Diane Wayne."

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Glaser recently represented top agent Dan Aloni in his move from CAA to WME, a situation that did not involve the seven-year rule. Rather, Aloni was fired from CAA and ended up fighting — not over his right to leave — but over commissions from clients, including director Christopher Nolan. The newly minted UTA partners weren't fired, of course, but the recent Aloni dust-up illustrates that commissions — and not their contracts — likely will be the major front in the coming legal war.

California law isn't very friendly toward attempts to enjoin people from working, even if they defect (there are tons of examples of these cases in Silicon Valley). But CAA clients who follow their agents to UTA still will owe CAA for deals negotiated there (plus portions of sequels and renewals and such). And additional damages for lost commissions are winnable if the defecting agents still had time on their contracts. CAA likely will claim that it is owed commissions not only from deals negotiated while the agents worked at CAA but during the time remaining on their contracts, even if they are working at UTA during that period. Those commissions could be significant, and CAA is likely going to fight for every penny.

In the end, despite the acrimony and threats and a probable lawsuit, the likely outcome will be a deal that splits commissions between the two agencies and probably throws CAA some extra money for the time left on their former colleagues' contracts. And CAA's first order of business on Wednesday morning will likely be strategizing how to raid UTA's top agents and talent — in a legal manner, of course.

Twitter: @THRMattBelloni