Long-running legal wrangle is over 'Millionaire'

The size of the nearly $270 million verdict was a surprise.

But the fact that a Riverside, Calif., jury sided with a British production company against the Mouse House in the long-running legal wrangle over profits — or the lack thereof — from “Who Wants to Be a Millionaire” came as no surprise to the biz because the plaintiff’s narrative expertly depicted Disney as a greedy Hollywood Goliath that trampled the contractual rights of Celador Intl., the company that hatched “Millionaire” in the U.K. and licensed it to ABC and Disney more than a decade ago.

Biz observers said the verdict delivered by a federal court jury Wednesday was not likely to have a major impact on present-day dealmaking. For one, the contract language at issue between Disney and Celador dated back to 1998, and contract definitions for format licensing and profit participation have become exponentially more complex and more specific in the years since.

But one key area of contracts that the verdict may influence is the question of contractually mandated arbitration in the event of disputes. The Celador case was the rare example of a Hollywood accounting case that went all the way to a jury trial (although strangely enough, a similar case, Don Johnson vs. Rysher Entertainment, also was decided in the plaintiff’s favor on Wednesday).

Studios have already been increasingly including mandatory arbitration with no option to appeal as boilerplate in talent contracts. Those A-listers with the clout to demand that any contractual disputes go to court will try to do so, especially in light of the nine-figure award in the Celador case.

At the same time, as one top tenpercenter noted, even top-tier talent would probably resist backing away from a prospective deal just over an arbitration clause. And arbitration clauses, some so specific as to name the firm that will chose the arbitrator, will no doubt be pushed hard by Hollywood congloms in the wake of Celador. Professional arbitrators are generally seen to be dispassionate and less inclined to be swayed by the suggestion that a media behemoth conspired to deprive an individual of his or her rights.

“I’m wondering if, when Shakespeare did his plays, there was a fight with the theater,” said Peter Dekom, an experienced biz attorney with Weissmann Wolff. “I don’t think that the interpretation issues (in Celador) will have a deep impact on (biz) activity. I think all that’s going to happen is that deals going forward will continue to be redefined and limit additional compensation other than what is paid upfront.”

After three days of deliberations, the jury of five men and four women returned with a verdict ordering Disney to pay Celador $260.2 million in damages for breach of contract in relation to the license fee that ABC paid for “Millionaire,” and it awarded another $9.2 million in damages related to merchandise sales derived from the show — primarily a CD-ROM version of the game that was a hot property during the 1999 holiday season.

Disney indicated it would move quickly to pursue an appeal.

“We believe this verdict is fundamentally wrong and will aggressively seek to have it reversed,” Disney said in a statement.

Celador’s suit, filed in 2004, turned on the familiar theme of self-dealing among sibling units of a conglom. Celador maintained that ABC and Disney’s Buena Vista TV production-distribution unit decided to set the license fee at the same amount of what it cost to produce the show — $187,000 for a half-hour and $210,000 for an hourlong episode. Celador’s deal with Disney called for it to get a fixed fee for the show as well as to share in 50% of the profits from the show after distribution fees and other costs were subtracted. That 50% share was spelled out in the original contract as “defined contingent compensation,” and the devil was in the details of that definition.

Celador maintained that Disney never lived up to its obligation to generate as much profit as possible from the show by shopping it to other networks or asking other production companies to bid on “Millionaire” if they could produce it for a lower cost. With the license fee set to equal its production costs, the show never had a chance of making a profit and thus Celador never would see any profit participation coin.

“Millionaire” ran on ABC from 1999-2002 and has been a solid player in firstrun syndication since 2002.

Celador asserted that Disney also failed to act in good faith by not increasing the license fee after “Millionaire” became a mammoth hit for ABC in 1999 and 2000. That point about market value in the face of success is a very familiar refrain in self-dealing suits, such as the pioneering case brought in 1997 by Wind Dancer Prods., the shingle behind the Disney-produced ABC hit “Home Improvement” (the case was eventually settled out of court).

Disney’s litigators repeatedly countered that Celador’s beef was not with ABC or Disney but with the William Morris Agency, which repped Celador and orchestrated the deal terms with ABC. Celador attorneys countered that even WMA reps were unaware of ABC and Disney’s decision to set the license fee at production costs — a point to which former WMA agent Greg Lipstone (who’s now at ICM) testified, making a big impression on the jury, according to Celador attorney Roman Silberfeld. WMA was never a party to the lawsuit.

The four-week trial also included testimony from such key players in the “Millionaire” saga as Ben Silverman, who brought the show to the U.S. when he was a London-based WMA agent, and Disney chief Bob Iger.

Silberfeld acknowledged that the jury’s verdict is unlikely to rewrite the rules of Hollywood accounting, but it will still weigh on studio brass.

“The next time some studio has a decision to make on how to treat a profit participant, they will think about Celador,” Silberfeld told Daily Variety.

Celador Intl. was sold in 2006 to Dutch TV shingle 2wayTraffic (which in turn was bought by Sony Pictures TV in 2008). But “Millionaire” creator Paul Smith and other Celador principals retained the right to continue to pursue the “Millionaire” litigation separate from 2wayTraffic as part of the 2006 sale agreement.

The Celador case was originally filed in federal court in Los Angeles but transferred to Riverside as a means of expediting trial after the death of U.S. District Judge Florence-Marie Cooper earlier this year.

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