Where the Writers Guild Stands in Its Legal War With Agencies

Could the WGA get knocked out of its own lawsuit? A deep dive into the legal fight between the union and talent firms (part I of II).
WGAW

Litigation between the Writers Guild of America and the major talent agencies, which the WGA kicked off April 17 with a California state filing, has been a slow slog that may gain momentum in the wake of the union’s Oct. 18 refiling of its claims in federal court.

But with no substantive hearings scheduled until Dec. 6 — a date that could slip — industry observers will have to wait at least another six weeks for a court ruling on what are expected to be cross-motions for dismissal, in which the WGA and the largest three agencies each seek to knock the other side’s claims out of court.

Over the last six months, both sides have filed not only claims but also motions to dismiss. That makes it possible now to survey the state of play, albeit subject to real uncertainty. That’s because the claims sit mostly in an extremely specialized area of law, the intersection of labor and antitrust. Further narrowing that Venn diagram: Only two industries, entertainment and sports, use agents who are subject to union regulation. That means there are few cases directly on point and vanishingly few actual experts.

As a result, it’s impossible to predict outcomes with confidence — but one possibility is a grand fizzle in which both sides see large portions of their suits dismissed. Moreover, any dismissals may well be with leave to amend, allowing the losing party — or parties — to amend their claims and further drag out the uncertainty hovering over the ongoing dispute.

And another caveat for analysis at this stage: Neither side has filed a full set of briefs. That is, although each side has at one point or another filed claims, and the other side has filed an answer and a motion to dismiss, no one has yet filed opposition and reply briefs. Those will further develop the legal arguments and are likely to be filed over the next few month or so.

Joining the WGA in its original claims were eight individual writers, who are now seven, and one of the original defendants, ICM Partners, is out of the case, at least for the time being and probably to its relief (no more legal fees!). About the only certitude is this: Whichever way Judge Andre Birotte rules, he will be making new law. But that in turn increases the likelihood of an appeal that would further delay a definitive resolution to the lawsuit.

In this article, the first of a two-part series, The Hollywood Reporter lays out the WGA’s claims and the agencies’ likely response, a motion to dismiss. Part 2 will examine the other legal battlefield: the agencies’ claims and the WGA’s motion to dismiss.

WGA Claims

The WGA on Aug. 19 brought federal counterclaims against WME, CAA and UTA in three separate cases, but had to refile its claims in the wake of a decision by the judge to consolidate the litigation and restart the briefing process. The guild’s new filing includes substantially the same claims as before.

Most of those claims revolve directly around packaging fees. The WGA asserts that the Big Three agencies conspired with each other to set a uniform structure for packaging fees, the so-called 3-3-10 model, in violation of federal and state antitrust laws that prohibit price fixing. The guild also alleges state law breach of fiduciary duty, in that the agencies violated their duty to put their clients’ interests first, by taking packaging fees and thereby (according to the guild) decreasing writers’ compensation and production financing that writers and others rely on.

In a related claim, the guild alleges constructive fraud, which sounds nastier than it is: Constructive fraud means misleading someone (to their detriment) even without fraudulent intent. Further, says the union, packaging fees violate California’s expansive prohibition on unfair competition, because they are a conflict of interest that constitutes a breach of fiduciary duty and constructive fraud.

In addition, the WGA alleges, packaging fees violate the unfair competition law for another reason: They are, says the guild, an illegal kickback under federal labor law, which prohibits employers from paying money to any employee “representative.” And, by virtue of that criminal prohibition, the guild asserts four separate headline-grabbing racketeering claims under federal RICO law, all flowing from the anti-kickback statute as a criminal predicate that turns the agencies’ business activities into racketeering.

The complaint also alleges breach of contract related to UTA’s alleged failure to repay the entirety of commissions collected from one of the individual plaintiffs, Barbara Hall, on CBS' Madam Secretary.

Finally, the WGA claims that the Big Three agencies engaged in several illegal group boycotts over the last six months, in violation of federal and state antitrust law. The conduct the guild cites includes refusing to negotiate with the union on an individual basis after the guild had revoked consent to joint negotiation via the Association of Talent Agents; threatening entertainment lawyers who negotiate studio contracts for their clients in the absence of agents; and allegedly agreeing to blacklist agencies that sign the guild’s 2019 Code of Conduct, which prohibits packaging fees and affiliate production. (That latter target of guild concern — affiliated production entities at the Big Three — is not addressed in the litigation.)

The remedies the WGA seeks are both retrospective and prospective: declaratory relief and injunctions to prohibit future packaging fees, and damages, treble damages, restitution and disgorgement of profits, to remedy what the guild asserts are past violations.

Agencies’ Motion to Dismiss — Antitrust

The agencies have not yet filed a response to the WGA’s new 140-page filing, but WME had previously filed a motion to dismiss the WGA’s Aug. 19 counterclaims. That motion to dismiss gives a good picture of the agencies’ probable key arguments.

In that motion, WME argues that the guild and individual plaintiffs lack standing to assert the antitrust and RICO claims, and that the guild lacks standing to pursue the three key state law claims regarding fiduciary duty, constructive fraud and unfair competition.

The standing arguments are complex. With regard to antitrust standing for the price fixing claims, WME cites Supreme Court precedent that requires, among other things, that the plaintiff have suffered “antitrust injury,” a concept that requires that “the party alleging the injury must be either a consumer of the alleged violator’s goods or services or a competitor of the alleged violator in the restrained market,” in the words of a Ninth Circuit case that set out a five-factor test for antitrust standing. Therefore, argues WME, the antitrust claims by the guild and individual writers must fail, because neither of them buy or sell packages (rather, the studios do) or compete with the talent agencies.

In fact, says WME, the 1987 Ninth Circuit case, which involved the StarKist seafood company, is directly on point. There, a union and its members alleged that “canneries conspired to set tuna prices at artificially low levels,” resulting in reduced wages for union crewmembers, a loss of employment and a resulting reduction in dues paid to the union. Similarly, the guild argues that packaging fees depress writers’ wages and consequently union dues collected.

Packaging fees may stink, in the guild’s view, but so does day-old fish, and, ominously for the WGA, the StarKist court deemed the crewmembers’ and union’s claimed injuries as “merely derivative” of the vessel owners’ harm incurred by receiving short shrift for their catch. The judges accordingly affirmed a dismissal of the litigation. Sorry, Charlie. (And who’s sorry now? Just a month ago, StarKist was sentenced in federal court to pay a $100 million fine for tuna price-fixing.)

Yet another standing problem for all of the antitrust claims, says WME — citing another of the five factors the Ninth Circuit enumerated — is the problem of identifying and apportioning damages among claimants.

In addition, regarding the group boycott claims specifically, WME asserts that the guild has not suffered antitrust injury, because it is neither a consumer nor competitor of agency representation services, and even if individual writers are allegedly harmed, the resulting harm to the guild is too indirect to confer standing. On the other hand, the individual plaintiff, Meredith Stiehm, is a consumer of such services, but WME argues that the chain of events she cites regarding the group boycott is too speculative, citing another of the five factors the Ninth Circuit enumerated.

Moreover, Stiehm fired WME at the guild’s direction, which means, says WME, that she and the guild caused their own injury.

That last seems a stretch, but the other arguments feel compelling. However — again — in the absence of the WGA’s opposition brief, one would have to read the cases and research the law in detail (which this reporter has not done) in order to determine whether seemingly oak-paneled arguments are merely cheap veneer. In hyper-technical fields like antitrust and standing, there’s no substitute for a deep dive.

In addition to standing problems, WME argues that the WGA antitrust allegations are too vague, or “conclusory” in legal argot. Such allegations are insufficient, the agency argues, quoting a recent Ninth Circuit case, as they do “not answer the basic questions: who, did what, to whom (or with whom), where, and when?” Indeed, in a 2018 case, WME adds, the Ninth Circuit rejected claims (by a smaller agency) that the Big Four agencies engaged in price fixing related to packaging fees, because the allegations were too conclusory. “Mere participation in trade-organization meetings,” said the court in reference to the Association of Talent Agents, “does not suggest an illegal agreement.”

RICO

Moving on to RICO, the agency first cites cases that it says establish that RICO standing and antitrust standing are governed by similar principles and that the guild and Stiehm therefore lack RICO standing for some of the same reasons they lack antitrust standing. WME also argues that the guild and Stiehm have not alleged a sufficiently tight causal relationship between packaging fees and any injury, and haven’t even shown proof of “concrete financial loss.” Whether those things have to be demonstrated at this stage of the pleadings is, however, another in-the-weeds question that requires research, or waiting until the WGA files an opposition brief.

The RICO claims fail substantively as well, says WME, because the anti-kickback statute simply doesn’t apply to the conduct at issue. That statute has always, and only, been applied to prohibit employer bribery of union officials and officials of union pension and health plans, according to the agency.

But drilling down, the text of the law refers to payments by an employer to an employee “representative,” and the latter term has been defined as an “individual or labor organization.” That latter has, in turn been defined as an organization “in which employees participate and which exists for the purpose … of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work.” A talent agency does exist for those purposes (other than dealing with labor disputes), but it’s not an entity in which employees participate. So analyzing the statute does require a close look. It also would be odd, WME suggests, to treat as criminal bribery an openly engaged commercial practice that the guild itself permitted under previous rules for 43 years.

State Law Claims

On to the state law claims: breach of fiduciary duty, constructive fraud and unfair competition. Here, again, WME attacks the guild’s standing, arguing that the WGA does not have associational standing to assert claims on behalf of its members because the claims asserted and relief requested are too specific to each individual member of the guild. What did a particular member know about the applicable package fees, did the member consent, did the member save money by not being commissioned, what were the terms of the package fee — each of these questions is member-specific, and thus not susceptible to being litigated en masse by the guild, says WME.

In addition, argues the agency, the guild lacks standing to assert the unfair competition claim on its own behalf because it did not suffer any direct injury due to the agency’s alleged conduct; lost dues are too attenuated, remote and speculative an injury.

On the substance of the state law claims, WME argues that the unfair competition claim fails because of the defects in the predicate fiduciary duty, constructive fraud and anti-kickback claims and, once again, because the allegations are too vague. In addition, says the agency, Stiehm’s allegations regarding fiduciary duty and constructive fraud are too vague: She hasn’t pled any details as to how she was injured, how WME breached its duty or whether the conduct is within the statute of limitations.

Conclusion

There are a lot of moving parts, but most roads lead to challenges to standing. If the agencies prevail, the antitrust and RICO claims could be dismissed and the guild could be dismissed from its own lawsuit, leaving only the individual plaintiffs to carry on rump litigation, presumably at the union’s expense. They would have standing to pursue the state law claims and would probably be granted leave to amend the pleadings to add specificity.

Meanwhile, the agencies have their own claims against the WGA, which THR examines in part 2 of this series.

For more on this subject, visit THR‘s labor page.