Is a Legal Battle the Next Act In the Oscars Snafu Saga?

Warren Beatty, Jordan Horowitz

Warren Beatty showed Horowitz the correct envelope after the mistake was revealed on stage. 

The Academy's decision whether or not to end its eight-decade relationship with accounting firm PwC will likely be based on business factors, but industry lawyers say there are legal issues that could come into play.

Academy president Cheryl Boone Isaacs has made it clear that PwC is fully responsible for the Oscars misstep that resulted in the flubbed best picture announcement. She has assured members that changes will be made, but she hasn't indicated whether those changes could include hiring a new accounting firm.

Labor and entertainment lawyers say if PwC is fired, it would likely constitute termination for good cause under its contract with the Academy. 

"They’re supposed to be the custodians of these very precious envelopes and manage them correctly," says Gina Roccanova, chair of Meyers Nave's labor and employment group. "That’s the essence of their business relationship. It would be hard for them to say, 'Sorry, Academy, you didn’t have good grounds to terminate the contract.'" 

PwC has already indicated it won't sue in the event of a termination, according to Early Sullivan partner Devin McRae, by issuing multiple statements that take responsibility for the incident. "That public apology is not something that would have been made in anticipation of litigation," he says.

Theoretically, the Academy itself could sue in an effort to lower its tab with PwC, but experts speculate that the firm may proactively offer a deep discount, or even a total waiver of fees for the event, in an attempt to keep the business.

The two accountants who worked the Oscars this year, Brian Cullinan and Martha Ruiz, have already been disinvited from any future events. Cullinan is widely considered responsible for the fiasco, as he was reportedly tweeting backstage photos of Emma Stone around the time he was charged with giving Warren Beatty the best picture winner envelope. While Ruiz hasn't been outright blamed for the snafu, it has been suggested that she didn't act quickly enough to remedy the situation after the mistake had been made. The public backlash against the duo has been so strong that PwC hired private security for them.

"What a horrible way to become famous," says McRae. "He completely embarrassed the entire firm, in a way that reasonably brings into question their ability to do the very function that they provide. Probably the highest expectation you have for the people who handle your money is the attention to detail." 

It remains to be seen if Cullinan and Ruiz have been or will be disciplined by their employer, but experts say they likely signed partnership agreements that specify how, when and why they could be fired. Both companies would be wise to limit what they say publicly about Cullinan and Ruiz, attorneys say.

"If, in fact, [Cullinan] was not responsible, he may have a claim against Pricewaterhouse or the Academy for defamation," says Roccanova. "A lot of it will hinge on whether he messed up the way everyone is saying he did."

The same goes for Ruiz, who could be likened to the baby who was thrown out with the bath water. "Theoretically, if there was a public statement — or even an implication — that this person was responsible for the screw-up and that wasn’t true, that could lead to liability for defamation," says Hirschfeld Kraemer partner Daniel Handman. "If it were me, I would want that story to die down as quickly as possible. Bringing a lawsuit is the worst way to accomplish that goal." 

If any of these hypothetical firings become reality, any resulting dispute would almost certainly be subject to an arbitration provision and handled behind closed doors — but the experts say there's no reason for it to get even that far.

"Settle it before it blows up and have everyone sign non-disclosure agreements," says Roccanova. "That’s the grown up way to handle it."