9:51am PT by Eriq Gardner
Discovery Looks to Settle Bitter Reality TV Dispute, But Show Stars Say, "Not So Fast"
In the summer of 2016, Discovery Communications took an ax to much of its reality TV programming. The cable giant sent notices of termination for shows including 7 Little Johnstons, Killer Confessions, Speaking for the Dead, Unusual Suspects and Hollywood & Crime. The reality programs were produced by LMNO, and as lawsuits would soon reveal, there was quite a commotion happening behind the scenes of 16 television shows, with the FBI even investigating possible fraud. Now, Discovery and LMNO might be on the verge of pulling off a settlement with each other. But before that happens, a judge is being asked by two reality TV stars to intervene and stop the potential transfer of intellectual property rights. The case is complicated, but a settlement is only adding to the intrigue with a decision that could impact the rights of other TV and movie stars.
LMNO has troubles. That much is certain.
In June 2013, the producer filed a $7 million lawsuit against Discovery that claimed LMNO's former accountant had embezzled money and doctored books. LMNO alleged that Discovery had taken advantage of the situation to steal the hit TLC series The Little Couple, featuring Bill Klein and Dr. Jennifer Arnold as a married couple living with skeletal dysplasia, more commonly known as dwarfism.
Discovery framed what happened differently in counterclaims. According to Discovery, the accountant was really a "whistleblower" who revealed how Discovery was being systematically defrauded on the show's finances. Discovery also says it was contacted by the FBI as part of an investigation into LMNO business practices. Discovery pointed to contracts and claimed it had the right to take over ownership of Little Couple and other shows.
The dispute continued to evolve with further fights over reality TV footage held "hostage" and more. Meanwhile, Klein and Arnold intervened in the litigation by filing a third-party complaint aimed at reclaiming intellectual property rights and collecting their share of contingent compensation from the series.
On Friday, in California federal court, came word for the first time that Discovery and LMNO are on the verge of a settlement. And Klein and Arnold aren't happy about this. They've submitted an application for a temporary restraining order (read here) that would prevent any transfer of the ownership rights to Little Couple. On Monday, a response to the application came with LMNO telling the judge that a settlement in principle has been reached (here) with Discovery telling the judge that the parties are engaged in advanced settlement discussions (here).
Regardless of the state of the settlement, U.S. District Judge John Kronstadt must now decide whether alleged fraud is cause for performers to take back the right to own their images.
Klein and Arnold say that in 2008, they conveyed their intellectual property rights, including their copyright and name and likeness, in exchange for upfront compensation and a percentage of LMNO's contingent compensation. They now point to testimony how LMNO produced Little Couple for "far less" than the amounts received from Discovery, and accordingly, how LMNO's claims of the show being in deficit were a fiction. What's more, they say LMNO has acknowledged that it didn't track purported expenditures and they add that LMNO attempted to "re-create" amounts it had spent by moving certain company overhead into the accounting books for its shows.
"[I]t has become clear that LMNO engaged in systemic fraud, consistently misrepresenting to Plaintiff-Intervenors amounts of contingent compensation owed to them, to the tune of hundreds of thousands of dollars fraudulently withheld from Plaintiff-Intervenors," states court papers from Klein and Arnold. "This blatant fraud entitles Plaintiff-Intervenors to rescission and the return of their intellectual property rights in the Program."
Klein and Arnold say they will suffer irreparable harm if intellectual property rights are transferred to Discovery to settle Discovery's claims.
Discovery disputes that there's any "emergency" warranting a "drastic, extraordinary, and untimely temporary restraining order."
Klein and Arnold never owned any copyrights to Little Couple, Discovery argues, because these two reality TV stars "played no role in fixation of the final episodes of the program, nor can they have a specific copyright in their performance. Rather, at most, Plaintiff-Intervenors have a contract claim against LMNO, for which legal damages would be sufficient. Moreover, the equitable remedy of contract rescission is a drastic remedy, and is unavailable where it affects the rights of third parties, particularly where conditions have so changed since the contract sought to be rescinded was entered."
LMNO agrees (while at the same time quarrelling with the proposition that backend compensation wasn't properly calculated).
After nodding to the 9th Circuit decision in Garcia pertaining to the actress who sued over Innocence of Muslims, LMNO's lawyer adds, "Not surprisingly, while disputes between producers and talent regarding backend compensation are hardly uncommon, Plaintiff-Intervenors cite to no case in which any court has ever awarded an actor an ownership interest in a copyright for a motion picture based on a finding that the producer failed to pay (or made misrepresentations concerning) the amount of backend compensation to which the actor was entitled...Quite simply, LMNO owns the copyrights in each episode of The Little Couple. And, even assuming a rescission of the 2008 Option Agreement, there is no legal grounds on which Plaintiff-Intervenors could either claim or obtain an ownership interest in these copyrights."
Klein and Arnold will test that. Although it's true that the reality TV stars have yet to identify a case where performers grabbed back the rights to their performance from a producer, they do list certain cases where fraud has been grounds for the rescission of contracts. This case also covers reality television, which wouldn't happen without the consent of those featured.
As for their harm, a factor in whether or not a restraining order will issue, Klein and Arnold say monetary damages won't be adequate and that "with a dismissal by LMNO, Discovery will no longer be a party to this litigation. LMNO will then face trial by Plaintiff-Intervenors, but will be left holding an empty bag, with nothing left for Plaintiff-Intervenors to recover."
The other parties respond this is speculative and that Klein and Arnold would always be free to add Discovery to an amended complaint.