12:43pm PT by Eriq Gardner
'Walking Dead' Co-Creator Frank Darabont's $280M Suit Against AMC Headed to Trial
Walking Dead creator Frank Darabont and CAA will head to trial against AMC in a massive lawsuit over the mega-hit zombie series after a New York judge largely denied summary judgment motions on Monday. The decision represents somewhat of a favorable development for AMC, which is alleged to have cheated profit participants through self-dealing agreements and underhanded accounting. The judge in the case denied Darabont's bid to declare that when AMC imputes license fees, it must be fair-market value. The judge sees a fact question with respect to contractual interpretation of the key issue in the case, and so the ultimate determination will eventually be tried before a jury.
Darabont and his agents filed their massive lawsuit all the way back in 2013, and in the five years since, it has become perhaps the biggest profits case in Hollywood history.
The Walking Dead enjoys record-setting ratings for cable television and, in past years, its viewership rivals professional football games. The series is produced by AMC Studios and distributed by AMC Networks, and so for those creative executives who are contractually entitled to a piece of the profits, what is highly significant is the amount that the network "pays" the studio in licensing fees — an imputed value. That makes up the bulk of the show's revenue.
In this dispute, Darabont and CAA contend that AMC should be booking a lot more in imputed fees. Instead of about $2.4 million an episode, plaintiffs' experts suggest it should be somewhere between $20 million to $30 million an episode — an amount that would fundamentally reshape the economics of the series. Plus, Robert Kirkman and other creative executives with profit participation for the series are pursuing a similar claim in a separate lawsuit.
The key issue in this case has to do with the so-called "Affiliate Transaction Provision," which plaintiffs contend is protection whereby AMC agreed to conduct its transactions with affiliated companies "on monetary terms comparable to the terms" made with non-affiliated companies. In the eyes of Darabont and CAA, when AMC books value for The Walking Dead, it should be akin to the way AMC pays Sony for Better Call Saul or Lionsgate for Mad Men, except with significantly greater value, since the zombie show is a much bigger hit and has bolstered AMC's stock price.
On summary judgment, both sides spelled out their respective contractual interpretations and asked the judge to rule in their favor.
Judge Eileen Bransten writes, "The court concludes that the agreement is susceptible to the interpretation urged by both parties in regard to whether the Affiliate Transaction Provision applies to the imputed license fee and is therefore ambiguous."
As such, this issue is headed to trial.
That determination might not seem like a win for either party, but Bransten has been largely favorable to plaintiffs throughout the proceeding and there was significant concern at AMC that the judge would rule in plaintiffs' favor — leaving the trial to be merely about the amount of damages.
AMC replaced its lawyers in the midst of some struggles in the case (see, for example, oral arguments), and the new team at Gibson Dunn in recent months has taken a different tact by arguing that the contract amounts to a factual question that should go to trial. The company has even teased its trial strategy by laying blame on sophisticated agents and lawyers in the industry who hardly could have been hoodwinked. So maybe because of the perception that until recently, Darabont had the momentum, AMC is likely relieved that Bransten hasn't handed down a punishing loss even if technically, AMC's own contractual interpretation got denied today, too.
Bransten's decision amounts to a win for AMC in another place.
Darabont asserted that since the second season of The Walking Dead was produced within budget and on schedule, AMC was required to negotiate with Darabont to be showrunner on the third season of the series. AMC responded that his negotiation rights didn't survive his termination and would run counter to a "pay or play" provision of his contract.
The judge agrees with AMC here and dismisses the plaintiffs' claim with respect to Darabont being denied an offer to work on the later seasons of the show.
On the other hand, Bransten isn't quite ready to dispense with a claim dealing with derivative works such as Talking Dead and Fear the Walking Dead.
The judge rules that Darabont's negotiation rights didn't survive termination under the "pay or play" provision with respect to the spinoffs, but adds, "However, defendants have not established that the right to passive payments ... was extinguished."
Further, Bransten denies AMC's bid to escape a claim related to Darabont's profit participation vesting. After a profane tirade as detailed in many emails that surfaced in discovery, Darabont was fired in the middle of the second season. Nevertheless, he asserts that his work can be seen throughout the second season and that he is contractually entitled to a few extra points in profit participation under his contract.
With respect to the issue of whether Darabont was only partially vested, the judge deems AMC's argument to be "unpersuasive," adding that "issues of fact exist as to whether Darabont provided some full-time, in-person executive producer/showrunner services on all episodes of Season 2 before he was removed from the Series."
The case may still be a couple years away from trial, given the retiring judge and a crowded court docket (plus any appeals). Nevertheless, a key stage of this dispute ends and another one opens.
Both sides provided comment about the development.
"We are pleased that the Court denied AMC’s motion for summary judgment as to every key claim in Plaintiffs’ case," said Dale Kinsella, attorney for the plaintiffs. "We look forward to proceeding to trial on Plaintiffs’ claims, which now exceed a quarter billion dollars.”
"We are very pleased with today’s decision," says AMC attorney Orin Snyder. "It is a victory. The judge denied plaintiffs’ motion for summary judgment outright on the fundamental issue in the case. The judge also awarded summary judgment to AMC on four of plaintiffs’ claims, throwing them out completely. We now look forward to trial where we are confident we will prevail. This lawsuit is nothing but a money grab by CAA and the greedy Hollywood lawyers who feed off talent and are the driving force behind this suit. These plaintiffs have been paid millions and millions of dollars on The Walking Dead, which AMC turned into a hit after taking a risk on a show that no other network wanted. Now the same sophisticated Hollywood lawyers and agents who negotiated plaintiffs’ deal want to rewrite the contract many years later to extract even more money. A jury will see right through this scheme. We appreciate the judge’s careful and thorough review of the arguments and look forward to victory at trial.”