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Protecting Yourself Legally in the Film Industry

By Neville Johnson and Douglas Johnson

We litigate controversies on behalf of producers, distributors, writers, actors, directors, talent, and independent film companies. We frequently sue the major studios on behalf of talent and independent producers. Here are common issues arising in the industry:

Get all agreements in writing. Film legend Samuel Goldwyn once said: "A verbal contract isn't worth the paper it's written on." That's not true. Oral contracts are just as enforceable, but they are much more difficult to prove. Get it in writing as best you can, as soon as you can. We have had many cases based on handshake agreements that would not have arisen had there not been this barrier. We have seen this especially in situations where one party is raising money for another, typically investment in a film. The investor is obtained, and thereafter, details of the deal become fuzzy between or among the parties because there is no clear documentation. A sound recording of the parties agreeing on an iPhone constitutes a writing. Always confirm details and understandings of any deal with relevant parties so there is a record. Send follow-up emails and letters that state the deal agreed upon as this can be relevant and important evidence that there was an agreement.

Another term that must be considered in the event of a dispute is venue, which means where the dispute be adjudicated? It is always thought that the city or "home court" of the contracting party is best. Otherwise, there are travel costs associated, and the possibility of being "hometowned," that is, that the other side and its attorneys are more wired into the legal process than the other. The parties need to specify where the venue will be otherwise it will be in one of the jurisdictions where the parties reside - probably the one with more leverage. In international agreements, they must consider which country the dispute will be adjudicated in. The party fighting will surely want it to be in its country. The smart business person has the contract state the venue for jurisdiction, the country, the city.

What is the forum for dispute resolution --- the courts of one of the parties or arbitration? Many contracts provide the forum and this is an increasingly controversial problem. In foreign sales agreements, the Independent Film & Television Alliance (IFTA), arbitration process is commonly required. This makes good sense for the parties because it is a relatively speedy process, inexpensive in comparison to full-blown court litigation, and arbitrators are knowledgeable about industry practices. However, in IFTA arbitration, punitive damages are not allowed. Therefore, if one party defrauds another, the only claim effectively can be for contract damages.

Contracts frequently require disputes to be heard in a confidential, binding arbitration before one provider, Judicial Arbitration and Mediation Service (JAMS), which has offices in the United States and London, thus preventing the establishment of precedent or publication of unfavorable information. The major movie studios are all requiring JAMS arbitration clauses and refuse to negotiate on this. Most attorneys for claimants say that because of this there is at least a perception of repeat player/provider bias in requiring mandatory arbitration before one provider. There are merely 14 entertainment arbitrators working for JAMS in Los Angeles and six studios that employ them. Rule once for serious damages against studios, so the argument goes, and that arbitrator won't adjudicate another case. This is called "repeat player" bias.

Add to the forgoing the cost of arbitration. If a small amount is owed, talent or other claimant is easily priced out of the market on a risk/reward basis given the administrative costs and the hourly fees charged by arbitrators -- often up to $900 per hour. There is no realistic way to challenge the fees of arbitrators either. Few qualified contingency fee attorneys (and this is if one can legally be allowed to work on this basis, which can be a factor affecting lawyers outside the United States) will take such cases, and studios habitually do not provide attorney fees clauses in their agreements.

Additionally, discovery is usually limited in arbitrations, sometimes with only one deposition per side permitted. This disfavors claimants, who may need to depose several witnesses from the other side to create a clear picture of events.

For these reasons, having a case in a court of law may be the best scenario if there is a dispute. Public trials provide unwanted "sunshine" on nefarious business practices and can intimidate wrongdoers and warn others by such exposure, and they may be much less expensive. Further, if the trial court or jury "gets it wrong" there is always the possibility of a winning appeal, which would otherwise be foreclosed in a binding arbitration. If the other side insists on arbitration, document the refusal to negotiate on this issue as some courts of law may find this to be "unconscionable" and thus allow a court trial instead.

If it is not going to be an IFTA arbitration, or in a court of law, and arbitration will be the forum, we recommend a provision that provides that the arbitrator will be selected by the parties and if they cannot agree, they shall each designate a third person who shall select the arbitrator.

To be enforceable, the agreement must state that the arbitration is binding, final, and can be enforced by any court of competent jurisdiction.

Auditing. In any contingent compensation or distribution agreement, there must be an accounting and audit provision. Ensure the right to audit or suffer the consequences, namely, the inability to know if there has been an underpayment. Get regular accountings and the right to see all relevant documents relating to any income and costs. (One common area of dispute is the "allocation" a distributor/sales agent may charge for marketing and attending festivals, such as Cannes or MIP.)

Can attorney's fees and costs of litigation be obtained? The general rule of the United States is that the prevailing party in litigation is not entitled to attorney's fees and costs unless there is a requirement stating so in the contract. The rule in Europe is that attorney's fees and costs are awarded to the prevailing party. The attorney fees can sometimes dwarf the amount at stake. Some lawyers work on contingency or partial contingency basis; they may be willing to do so when attorney's fees are available, warranted, and collectable. For this reason, we generally suggest that an attorney's fees provision awarding them to the prevailing party be made in part of the contract.

In sum, there is no substitute for conscientiousness in deal-making and being aware of the legal pitfalls and strategies if the deal goes sour, as so many do.

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This page contains a single entry from the blog posted on June 7, 2016 9:25 PM.

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