HOLLYWOOD — Hollywood studios can breathe a sigh of relief now that a federal judge has dismantled a mammoth class action lawsuit that challenged the way they do business and threatened astronomical damage payouts.
In a tersely worded order, U.S. District Court Judge Robert Takasugi ruled Tuesday in Los Angeles that the case Jim Garrison vs. Warner Bros., which accuses the studios of an antitrust conspiracy to fix the terms of net profits clauses, could not continue as a class action.
What concerned the judge was the different compensation packages among the nearly 600 plaintiffs. One requirement of such suits is that there are more common issues than specific individual claims among the plaintiffs in the class.
In his two page order, the judge held that upfront compensation to talent as well as net profits, or the so called backend, would need to be considered to determine the impact of any antitrust conspiracy. However, because upfront compensation is individually negotiated and varies from class member to class member, the court concluded that there were too many individual issues for the suit to continue in its present form.
Major industry victory
Although the case is not over and an appeal is likely, the mood at the studios was ecstatic. Several insiders described the decision as a major victory for the industry, which has once again withstood court interference with its unique contract provisions.
Bert Fields, who represents Paramount Pictures, said, “Class decertification is something a lot of very good lawyers have worked on from the very beginning of the case.”
His sentiments were echoed by Warner Bros. general counsel John Schulman and defendants’ class liaison counsel Robert Schwartz of O’Melveny & Myers.
Lead counsel for plaintiffs, Joseph Cotchett, did not return phone calls seeking comment. However, plaintiffs are entitled to appeal the class decertification order.
In their court papers, defendants had argued that net profits are just one part of the compensation package to talent, and there is intense negotiation over that package.
Defendants readily conceded that motion picture net profits bear no relation to the accounting term: a fact known to every agent and lawyer in Hollywood. While agreeing that the likelihood of receiving net profits is slim, the studios say the reason is the number of gross profit participants, not an industrywide conspiracy.
The Garrison case was brought in 1995 by the heirs of Garrison, the former New Orleans district attorney whose book “On the Trail of the Assassin” was the basis for Oliver Stone’s “JFK.” The lawsuit challenged the failure of Warner Bros., which distributed the film, to pay Garrison his 5% of net profits even though the movie grossed $150 million.
Unlike ordinary net profits cases, however, this lawsuit alleged that the seven major studios conspired to define the terms of net profits clauses, such as those involving the deduction of costs, in such a way as to ensure that net profits would never be paid.
What struck fear in the hearts of movie executives was that the case was brought as a class action on behalf of all net profit participants since 1988. Through a complicated process, approximately 600 plaintiffs actually joined the case.
The sheer number of plaintiffs, plus the fact that the amount of damages awarded is tripled under antitrust law, resulted in what many calculated could become a billion dollar case.
But with the class now disbanded, absent a successful appeal, it becomes another run-of-the-mill net profits dispute. What’s now left is an audit claim by the estate of Garrison against Warner Bros. over net profits on “JFK.”
Unless the court later dismisses it, the Garrison heirs could continue with their antitrust case, but the economics of an individual suing all seven studios make that unlikely.
The other plaintiffs could also presumably bring their own net profits suits, which most likely would be some kind of contract claim rather than an antitrust claim.
When the Garrison case was filed in 1995, it was promptly dubbed “Son of Buchwald,” referring to the legendary case Art Buchwald brought against Paramount Pictures in 1988 challenging the lack of net profits on the hugely successful “Coming to America.”
But the Buchwald suit was nowhere near as far ranging as Garrison: The case was a contract case against one studio and the damages awarded were only $900,000.