Disney Avoids Trial by Settling Long-Running 'Home Improvement' Profits Lawsuit

A six-year-old case that has influenced a new generation of fraud claims against Hollywood studios is ending.
ABC/Photofest
'Home Improvement'

Disney has struck a settlement with the creators of Home Improvement to put an end to a six-year-old lawsuit that resulted in a consequential appellate ruling and was within weeks of going to trial.

Back in 2013, Wind Dancer Production Group and writer-producers Matt Williams, Carmen Finestra, Tam O'Shanter and David McFadzean filed suit with the allegation that they had been cheated from a show starring Tim Allen that had generated $1.5 billion for Disney. The creative team targeted syndication money and alleged that Disney had charged massive distribution fees as well as sold the hit comedy into the New York market for no money, undercutting the pot of net profits, upon which they asserted a 75 percent stake.

The lawsuit represented the second major legal action over Home Improvement. Back in the 1990s, the creators had brought one of the first actions over "vertical integration" in the entertainment industry, challenging how Disney had licensed the show to its affiliates. As consolidation has gripped entertainment, "vertical integration" suits have since become more common, including ongoing legal disputes over AMC's The Walking Dead and Fox's Bones.

The 2013 suit made its own huge mark when a judge dismissed the case due to Disney's citation of an "incontestability" clause in the profits contracts that required an objection to participation statements within 24 months after the date sent and legal action initiated within 24 months after the date sent. A California appeals court then revived the case with the opinion that the trial court should have explored whether Disney should be prevented from asserting the incontestability clause due to its alleged conduct frustrating a challenge. According to the suing producers, Disney had a practice of delaying audits or only allowing one audit at a time such that they were unable to timely object.

That appellate decision now gets frequently cited by plaintiffs in profits cases. It opened the door to more viable claims of accounting fraud inside the industry.

In the Home Improvement litigation, the parties then went through a discovery process, and while the lawsuit was trimmed along the way, a Los Angeles Superior Court judge put the case on track for trial after denying Disney's summary judgment motion in April. In particular, the plaintiffs zeroed in on the way that Disney applied 35 and 40 percent distribution fees when licensing the domestic basic cable rights of the series. Disney contended that it was authorized to do so under the contracts, but the judge ruled this to be a triable issue. The plaintiffs also questioned the royalties they were getting from subscription video-on-demand services including Hulu.

The Home Improvement creators identified $40 million as their damages target for trial, which was scheduled to begin Sept. 9.

Instead, the plaintiffs, represented by a Robins Kaplan team including Roman Silberfeld and Mark Passin, and Disney, led by O'Melveny partner Daniel Petrocelli, have informed the court of a settlement.

On Tuesday, the judge vacated the trial date.

Neither party has responded to an opportunity for comment, and the terms of the settlement have not been revealed.