Writers Guild Adds Additional Claim to Suit Against Talent Agencies (Exclusive)

The WGA’s amended complaint alleges “constructive fraud” based on failure to disclose relevant facts and on breach of fiduciary duty.
Courtesy of WGA West

The Writers Guild of America amended its suit Monday against the major talent agencies, adding a claim with an explosive moniker — constructive fraud — but a tamer meaning. “Constructive fraud,” as the WGA’s First Amended Complaint notes, does not imply fraudulent intent, but instead is premised on breach of fiduciary duty and/or on an agent’s failure to disclose material facts to a client.

The new complaint alleges that WME, CAA, UTA and ICM committed constructive fraud by placing their own interests ahead of their clients’ by proceeding with representation despite conflicts of interest, and by concealing numerous alleged facts about the way packaging and packaging fees work. It also alleges, as did the original complaint filed April 17, that packaging fees — one of the two key business models undergirding the upper ranks of the agency business — are a breach of fiduciary duty and an illegal kickback under federal and state statutes, including California’s Unfair Competition Law.

“The WGA’s litigation is a publicity stunt and now they are in strategic retreat,” said CAA’s counsel, Richard Kendall of Kendall Brill & Kelly. “This amendment will delay, but not avoid, the court’s anticipated dismissal of the WGA’s case. Then, one hopes, the parties will return to the bargaining table, where they belong.”

Whether the dispute will play out that way is unknown. According to the guild, over 7,000 writers have fired their agents, out of 8,800 who previously were represented (and out of 14,500 active WGA members). One WGA member told THR on Friday that she wouldn’t return to her agent even if the WGA lost the case, unless the agency ceased packaging. Writers have been using online resources, networking and managers and lawyers as a substitute for agents.

WME, UTA and ICM had no comment.

“This is a desperate attempt by the WGA to keep their utterly meritless legal battle alive,” said the Association of Talent Agents, with whom the WGA had held unsuccessful talks. “Today’s action by the WGA is further evidence that Guild leadership had no intent to pursue a negotiated solution with the ATA, instead opting for a long and costly legal process that was completely avoidable. It is ironic that the Guild is accusing these agencies of fraud when in reality, it is Guild leadership who have misled their members into believing they are trying to make a deal. Unfortunately, it’s those members who will be footing this bill with their own membership dues, and who will have to continue without agent representation. Despite the Guild’s tactics, we remain committed to a solution for writers and agents. We are still waiting for a formal counteroffer from the Guild, and urge writers to ask their leadership to come back to the table.”

The suit seeks an end to packaging fees on new and existing series, and also disgorgement and restitution of packaging fees previously received by the agencies. The plaintiffs are the guild’s West and East branches and eight individual writers, Patti Carr, Ashley Gable, Barbara Hall, Deric Hughes, Chip Johannessen, Deirdre Mangan, David Simon and Meredith Stiehm.

The disputed practice, in which agencies are compensated by studios (their clients’ employers) rather than by commissioning the clients themselves, was commonplace for roughly five decades, and was permitted under a 1976 agreement between the WGA and the Association of Talent Agents that the guild terminated April 12, replacing it with a unilateral code of conduct that prohibits packaging fees and affiliate production, a practice not addressed in the lawsuit.

No major or mid-tier agency has signed the code and, indeed, the only agency with major writer clients that has signed on is Verve, a 30-agent shop that is not an ATA member. Three mid-tier agencies, Paradigm, APA and Gersh, all told The Hollywood Reporter on Friday that they did not intend to sign.

At stake in the suit are massive sums, although packaging of new shows has become somewhat less lucrative in the Netflix era. That’s because digital streamers tend to do long-term, often worldwide deals, meaning that there is less afterlife for streaming shows than there was for network series even 10 years ago, when syndication and foreign sales were common for hit series. Gone with those aftermarkets is the potential for outsize profits that drove huge returns for showrunners, stars, pilot directors and agencies.

The allegations added to the amended complaint include concealment of the alleged facts that:

* packaging fees are paid directly by production companies from a program's budget or revenues to the agency,

* agencies allegedly sought to prevent their clients from working with talent represented by other agencies in order to avoid having to split packaging fees with other agencies,

* agencies allegedly intentionally failed to maximize their clients’ compensation in order to maximize their own packaging fees,

* agencies allegedly intentionally failed to pitch clients’ to production companies that would pay the most and instead  pitched to companies that the agencies believed would pay the largest packaging fee,

* agencies allegedly often makes more in packaging fees than their clients,

* packaging fees allegedly are frequently paid to the agency before the profits that determine how the writer’s profits are calculated, which therefore reduces the overall amount of money paid to the writer,

* the agency’s packaging fee is often tied to the budget of a particular production rather than the amount paid to the writer and, therefore, the agency allegedly is incentivized to reduce the amount paid to the writer in order to increase the amount of the budget available to compensate the agency,

* agencies allegedly use popular writer clients as leverage to secure packaging fees even where doing so does not serve the economic and/or creative interests of the writer,

* agencies allegedly have, in some instances, intentionally and actively suppressed the wages of their own writer clients in order to secure more lucrative packaging fees for the agency, and

* agency interests in negotiating packaging fees for itself are allegedly not aligned with, and are at direct odds with, its clients’.

5/20/2019 10:53 p.m. updated with ATA statement.