Guilds dealt setback in foreign levies dispute

A federal judge has dealt a setback to the WGA and DGA over how the guilds handle paying millions of dollars from foreign tax revenues to writers and directors.

U.S. District Court Judge Margaret Morrow has written that the WGA and DGA have limited the rights of plaintiffs in a lawsuit alleging that the guilds have mishandled those funds and that guilds lack the authority to handle those funds in the first place.

Morrow issued the opinion April 11 as part of granting a motion by the four plaintiffs — all non-members of the guilds — to move the case out of federal court and back to state court. The original suits, which seek class-action status, were filed in state court and consolidated.

What’s at stake are so-called “foreign levies” collected from countries by such mechanisms as taxes on video sales and/or rentals to compensate copyright holders for reuse. The funds aren’t residuals, which are spelled out in the minimum basic agreement with studios and nets.

In the early 1990s, the WGA and DGA began tapping into those funds on behalf of members and also of others who had a stake in films but did not belong to the unions. Attorneys for the guilds assert that before then, copyright holders — studios and producers — got all of it, but the WGA and DGA began negotiating agreements with foreign collection societies for 15% of it.

Attorneys for the WGA and DGA contended in arguments to Morrow that the case should be tried in federal court on the basis that federal labor law covering union contracts pre-empts state law. And Morrow also noted that the guilds contended that had they not negotiated the foreign levy agreements, the plaintiffs would not have any right to the funds.

But in her ruling, Morrow found that the foreign levy agreements limited the rights of the plaintiffs, who include William Richert (who wrote “The Man in the Iron Mask”), William Webb (who directed “Delta Fever”), Pearl Retchin and Ann Jamison (both heirs of WGA members).

“By providing that the Guilds would receive less than 100% of the author’s share, the agreement clearly limited plaintiff’s right to receive their full share of the foreign levies,” Morrow wrote. “The court therefore concludes that the agreement contains ‘clear and unmistakable language’ circumscribing plaintiffs’ rights.”

Morrow also asserted that the rights to those funds don’t belong to the WGA and the DGA but to the authors of the works.

“That the companies and the defendants entered into an agreement apportioning the rights to the foreign levies does not mean that the contract created those rights in the first instance,” she wrote. “This is confirmed by a review of the agreement, which acknowledges the authors’ right to a portion of the foreign levies but does not purport to create it.”

Finally, Morrow noted that the Guilds’ actions would be illegal if the plaintiffs can prove their central allegation in state court — “that defendants have illegally converted funds that rightfully belong to plaintiffs by holding themselves out as having the right to collect foreign levies on behalf of non-members without having obtained the non-members’ authorization to do so.”

In a February court hearing, attorneys for the WGA and DGA asserted that the deals to collect the monies were negotiated at “great expense” with U.S. management and foreign jurisdictions.

“This is a case of no good deed going unpunished,” said Daniel Schechter, an attorney for the DGA. “But for the efforts of the unions, no writer or director would be receiving their share. It would be held entirely by management.”

The WGA and DGA argued that they’ve got the right to make such deals for members as part of their inherent powers under federal law. And Emma Leheny, an attorney for the WGA, said that ruling against the Guilds would result in “patchwork jurisdiction” over the foreign monies.

But attorneys for the plaintiffs argued that the guilds never had the right to collect the funds in the first place.

How much is at stake? According to a December deposition by WGA CFO Don Gor, the amount of foreign levies paid by foreign governments to the WGA for disbursement to writers has totaled $47 million since 1991. The amount of undisbursed funds was about $20 million, as of a year ago.

“It’s basically found money that nobody expects on it,” Gor said. “And we don’t know when it’s going to come in.”

The WGA’s kept the controversy over the unpaid money mostly under wraps. It was hit by a whistleblower suit last fall filed by former employee Teri Mial who handled foreign levy payments for eight years until she was fired for what she alleges in retaliation for her talking to federal investigators.

Gor said the guild is still only able to pay 60% of the foreign levies due to members and will need two or three more years to improve the payouts to what he regards as an acceptable level.

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