3:20pm PT by Austin Siegemund-Broka
Child Actors Win Appeal Claiming Bank of America Illegally Charged Fees
In a class action filed by the parents of two young actors, Bank of America faces a challenge in the form of a old-Hollywood law made to protect the earnings of child stars. In an appellate decision on Monday, a California court ruled the bank violated the state's Coogan Law with service charges for the kids' bank accounts.
What is the Coogan Law? The 1938 legislation is named for child actor Jackie Coogan, who broke into the business appearing with Charlie Chaplin in 1921's The Kid and went on to become a star. His earnings under the laws of the time were entirely owned by his parents, leading Coogan to sue them.
His lawsuit resulted in the Coogan Law, which stipulates 15 percent of the earnings of child actors be held in "Coogan accounts" separate from their parents' finances and set aside until the actors turn 18. The law prohibits the withdrawal of funds from Coogan accounts without the approval of a court — which is how Bank of America ended up on the other end of the class action suit.
The case brought in 2012 by the parents of Alex Gonzales and Jadon Monroe took aim at the bank for extracting monthly service fees and other charges from their children's accounts. They argued the withdrawals violate the Coogan Law. In an early setback, the Los Angeles Superior Court dismissed the lawsuit, ruling the service charges of financial institutions didn’t violate the Coogan Law.
The parents appealed, and this time the court sided with them.
According to the ruling, Bank of America argued their "debits" of the account weren’t "withdrawals" and the restrictions on the accounts were only "to reach trustees — a parent or guardian or other individual or entity — who is responsible for managing and controlling a child actor's earnings."
The appellate court disagrees. "The parties rely on dictionary definitions of 'debit' and 'withdrawal' to support their positions. But, when a bank debits an account, it necessarily withdraws money from that account," reads the ruling, which notes case law generally uses the word “withdrawal” to characterize service charges and fees from financial institutions.
The bank further argued that only the children and their parents, trustees or guardians could petition the court to alter the Coogan accounts, so only they were able and required to receive the court’s approval to withdraw from them. Responds the court, "That those with a fiduciary duty can seek to amend or terminate the trust does not mean that a third party without such a fiduciary duty cannot seek court approval to withdraw funds from the trust or that the restriction on withdrawals does not apply to such third parties."
Separately, the bank held the Coogan Law was in this situation preempted by federal banking laws. But in the court's view, case law (particularly a 1996 decision in the Florida case Barnett Bank of Marion County. v. Nelson) holds that a state law must "prevent or significantly interfere with the national bank's exercise of its powers" for federal law to preempt it. In this case, the court holds Bank of America's right to collect service charges is not prevented by the Coogan Law — because the bank could collect from the performers' trustees or parents, just not from the Coogan account itself.
David Markun and Daria Carlson of Markun Zusman Freniere & Compton represented the plaintiffs. "There is a reason for this law, and that is to provide financial security for these children's future," said Carlson in a statement. "This ruling will ensure that Coogan accounts will no longer be drained by bank fees. We suspect that other banks have also been withdrawing fees from Coogan accounts. Anyone who has set up a Coogan account should make sure no fees have been withdrawn."
Carlson tells The Hollywood Reporter the scope of potential damages is unclear for the time being because the judge halted discovery during the 2013 dismissal proceedings. But she estimates "thousands" of child actors were affected.
Bank of America and its attorneys declined to comment.