Garrison v. Warner Bros.The world of motion pictures is "a never-never land of illusion," according to this class action complaint brought against the major studios, referring not to the movie magic that has made Hollywood famous but to the bookkeeping techniques that may be unique to Hollywood studios. The suit was filed by the heirs of Jim Garrison, the late New Orleans District Attorney, who wrote "On the Trail of the Assassins," the book that inspired Oliver Stone's film, "JFK." According to the Garrison estate, the film has earned over $150 million for Warner Bros., the studio that distributed the film, but has still not shown a "net profit" in which the Garrison estate is entitled to share. This complaint goes into the history of Hollywood's allegedly "creative" bookkeeping practices, from the days of the nickelodeon through the "Golden Age" and the modern era where major stars have the clout to share in the gross revenue of a film, avoiding the studio's allegedly problematic definition of "net profit." The parent company of Warner Bros., Time Warner Inc., is a part owner of Court TV. JOSEPH W. COTCHETT (36324)
STEPHEN R. BARNETT (75491)
MARK D. EIBERT (116570)
NANCY L. FINEMAN (124B70)
COTCHETT & PITRE
840 Malcolm Road, Suite 200
Burlingame, CA 94010
(415) 697-6000
THOMAS V. GIRARDI (36603)
JAMES B. KROPFF (94056)
GIRARDI & KEESE
1126 Wilshire Boulevard
Los Angeles, CA 90017
(213) 977-0211
WALTER J. LACK (57550)
ADAM D. MlILER (141808)
EGSTRON, LIPSCOMB & LACK
10100 Santa Monica Boulevard
16th Floor
Los Angeles, CA 90067-4107
(310) 552-3800
Attorneys for Plaintiffs
and the Class
ORIGINAL FILED
NOV 17 1995
LOS ANGELES
SUPERIOR COURT
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF LOS ANGELES
The Estate of Jim Garrison, in
possession of JIM R. GARRISON,
LYON H. GARRISON, VIRGINIA J.
GARRISON, ELI2ABETH Z. GARRISON,
and EBERHARD D. GARRISON,
individually, and on
behalf of all those similarly
situated,
Plaintiffs,
v.
WARNER BROS., INC., a Delaware
corporation, PARAMOUNT PICTURES
CORP., a Delaware corporation,
TWENTIETH CENTURY FOX FILM CORP.,
a Delaware corporation, UNIVERSAL
CITY STUDIOS, a Delaware
corporation, UNITED ARTISTS
CORPORATION, a Delaware
corporation, METRO-GOLDWYN-MAYER,
INC., a Delaware
corporation, SONY PICTURES
ENTERTAINMENT, INC., a Delaware
corporation, COLUMBIA PICTURES,
INC., a Delaware corporation, THE
WALT DISNEY COMPANY, a Delaware
corporation, WALT DISNEY
PRODUCTIONS, INC., a Delaware
corporation, TOUCHSTONE PICTURES,
INC., a Delaware corporation,
HOLLYWOOD PICTURES, INC., a
Delaware corporation, TRISTAR
PICTURES, INC., a Delaware
corporation, MOTION PICTURE
ASSOCIATION OF AMERICA, an
association, and DOE 1 through
DOE 10, inclusive,
Defendants.
CASE NO. BC139282
CLASS ACTION
COMPLAINT FOR:
1. PRICE FIXING
2. BOYCOTT / CONCERTED REFUSAL TO DEAL
3. BREACH OF CONTRACT
4. BREACH OF IMPLIED COVENANT OF GOOD
FAITH AND FAIR DEALING
5. UNJUST ENRICHMENT
6. IMPOSITION OF CONSTRUCTIVE TRUST
AND FOR AN ACCOUNTING
7. DECLARATORY RELIEF
8. VIOLATION OF BUSINESS AND PROFESSIONS CODE
SECTION 17200 ET SEQ.
9. INJUNCTIVE RELIEF
TABLE OF CONTENTS
I. INTRODUCTION
II. THE PARTIES
A. PLAINTIFFS
B. DEFENDANTS
C. DOE DEFENDANTS
D. UNNAMED CO-CONSPIRATORS
E. ACTS OF ALL
III. DEFINITIONS
IV. CLASS ALLEGATIONS
V. BACKGROUND OF THE INDUSTRY
A. HISTORY OF THE INDUSTRY
B. ECONOMIC LEVERAGE OVER TALENT
C. HOLLYWOOD ACCOUNTING PROCEDURES
D. COERCIVE EFFECTS ON TALENT
E. PRIOR VIOLATIONS OF ANTITRUST LAW -
COMMON DESIGN PLAN AND SCHEME
F. FRAUDULENT CONCEALMENT
G. MARKET POWER .
H. THE STANDARD FORM CONTRACTS
VI. EFFECTS AND RESULTING INJURY TO PLAINTIFFS
AND THE CLASS
CAUSES OF ACTION
The above-named plaintiffs, on behalf of themselves and all
others similarly situated, allege as follows:
I. INTRODUCTION
1. The world of motion pictures is a never-never land of
illusion. In the making of a movie, millions of still pictures are
strung and spliced together to artfully imitate life, but when each
part is disassembled and seen separately each only reflects
static, one dimensional and unreal world. This creating of
illusions has extended throughout all the facets of the motion
picture industry since the days Thomas Alva Edison created and
marketed the shuttered lantern projector nearly 90 years ago. Of
all the illusions practiced daily in the motion picture world,
nothing is more unreal than the promises of "net profits" for
movieland's profit participants, a scam that has endured nearly
half century, enriching the few at the expense of all the
multitudes of talent responsible for actually creating the motion
pictures.
2. "Net profits" as defined in Hollywood contracts is an
esoteric bookkeeping device that could not be practiced in any
other multi-billion dollar industry. The practice, which delays
payment of profit sharing often forever, has earned the derisive
title "Hollywood accounting." It could only be practiced in
company town like Hollywood, where a few major studios control
90
percent of the movie world revenues, and that enormous economic
leverage can be and is used to force the signing and compliance
with contract terms no one would sign in any other business or
under any other circumstances.
3. From its inception, the moviemaking business has been an
uneasy mix of creative talent -- the writers, directors, producers
and actors whose ideas and skills create the magic on the screen --
and the business side -- the financiers, marketers and distributors
who sell the finished movie to the ticket-buying public. There has
never been an equitable accommodation of all creative talents'
rights to the profits.
4. "Hollywood accounting" has resulted in a talent caste
system where the so-called stars with big, well-established
reputations, most often actors or actresses and an occasional
producer and director -- writers almost never -- are given
contracts that provide participation in the gross income of
motion picture. For creative talent that is less well-established,
participation in the "net profits" is used to persuade the creative
talent to accept smaller upfront fees with the promise of more
later, for their creative work. Yet even the most successful
motion pictures seldom, if ever, produce any net profit for
creative talent. This law suit then is about the rights of all the
moviemaking world's creative talent ("Talent") to participate
equitably and in a timely manner in the often huge cash flow that
motion pictures generate.
5. This is a class action on behalf of Talent and is brought
under the laws of the State of California because of the movie
studios' adoption of unconscionable contract terms as part of their
standard form contracts, and their refusal to deal with Talent that
will not submit to these one-sided terms. This is the result of an
illegal conspiracy among the major studios that suppresses
competition, fixes prices, and violates the laws of the State of
California.
II. THE PARTIES
A. PLAINTIFFS
6. Jim Garrison was the author of the book On The Trail of
the Assassin. Mr. Garrison is deceased, and is represented in
this action by his estate. During his lifetime, Mr. Garrison was
resident and former District Attorney of New Orleans,
Louisiana, where his estate is administered by his heirs,
plaintiffs Jim R. Garrison, Virginia J. Garrison, Lyon H.
Garrison, Elizabeth Z. Garrison, and Eberhard D. Garrison.
7. The members of the plaintiff class have all either
written a book, story or script upon which a motion picture was
based, or acted in, directed or produced a motion picture, and,
in compensation for those activities, each of the plaintiffs have
entered into standard net profit contracts with one or more of
the defendants. The representative plaintiffs and Mr. Garrison
have engaged in the following transactions with defendants:
Jim Garrison, during his lifetime, entered into a
standard net profit contract dated "As Of January 20, 1989" with
Oliver Stone, giving Mr. Stone an option to purchase the motion
picture, television and allied rights to Mr. Garrison's best-
selling book "On The Trail Of The Assassins." A true and
correct copy of that agreement with the standard net profits
clause, is attached hereto as Exhibit "B". Oliver Stone assigned
his rights in that contract to defendant WARNER BROS and they
accepted said contract. This book was an account of Mr.
Garrison's prosecution of an alleged conspiracy in the
assassination of President John F. Kennedy. Warner Brothers made
this book into a movie entitled "JFK," which has grossed over
$150 million to date, and is continuing to earn profits. In
spite of the movie's huge financial success, Mr. Garrison and/or
his estate have received no payment at all from WARNER BROS.
pursuant to the "net profits" clause of the contract as attached.
He and now his estate are similar to all the other class members
set out hereinafter.
B. DEFENDANTS
8. Defendant WARNER BROS., INC. ("WARNER BROS.") is
a
Delaware corporation with its principal place of business in
Burbank, California.
9. Defendant PARAMOUNT PICTURES CORPORATION
("PARAMOUNT")
is a Delaware corporation with its principal place of business in
Hollywood, California.
10. Defendant TWENTIETH CENTURY FOX FILM
CORPORATION
("FOX") is a Delaware corporation with its principal place of
business in Beverly Hills, California.
11. Defendant UNIVERSAL CITY STUDIOS, INC.
("UNIVERSAL") is
Delaware corporation with its principal place of business in
Universal City, California.
12. Defendant UNITED ARTISTS CORPORATION ("UA") is a
Delaware corporation regularly transacting business in the county
of Los Angeles, California.
13. Defendant METRO-GOLDWYN-MAYER, INC. ("MGM")
is a
Delaware corporation with its principal place of business in
Santa Monica, California.
14. Defendant SONY PICTURES ENTERTAINMENT, INC.
("SONY") is
Delaware corporation with its principal place of business in
Culver City, California.
15. Defendant TRISTAR PICTURES, INC. ("TRISTAR") is a
Delaware corporation with its principal place of business in
Culver City, California.
16. Defendant COLUMBIA PICTURES, INC. ("COLUMBIA")
is a
Delaware corporation with its principal place of business in
Culver City, California. (Hereinafter SONY, TRISTAR, and
COLUMBIA will be collectively referred to as "SONY").
17. Defendant THE WALT DISNEY COMPANY ("DISNEY")
is a
Delaware corporation with its principal place of business in
Burbank, California.
18. Defendant WALT DISNEY PICTURES, INC. ("DISNEY
PICTURES") is a Delaware corporation with its principal place of
business in Burbank, California.
19. Defendant TOUCHSTONE PICTURES, INC.
("TOUCHSTONE") is
Delaware corporation with its principal place of business in
Burbank, California.
20. Defendant HOLLYWOOD PICTURES, INC.
("HOLLYWOOD
PICTURES") is a Delaware corporation with its principal place of
business in Burbank, California. (Hereinafter defendants DISNEY,
DISNEY PICTURES, HOLLYWOOD PICTURES AND
TOUCHSTONE will be
collectively referred to as "DISNEY").
21. Defendant MOTION PICTURE ASSOCIATION OF
AMERICA
("MPAA") is an association of defendants with its principal place
of business in Sherman Oaks, California.
22. Defendants WARNER BROS., PARAMOUNT, FOX,
UNIVERSAL, UA,
MGM, SONY, DISNEY and COLUMBIA, directly and through
their
corporate affiliates, were at all times relevant to this
Complaint in the business of producing motion pictures and
distributing them throughout the United States and the world.
C. DOE DEFENDANTS
23. The true names and capacities, whether individual,
corporate, associate or otherwise of the defendants Doe 1 through
Doe 10, inclusive are unknown to plaintiff who therefore sues
said defendants by such fictitious names pursuant to Code of
Civil Procedure 474; plaintiff further alleges that each of
said fictitious defendants is in some manner responsible for the
acts- and occurrences hereinafter set forth. Plaintiff will amend
this Complaint to show their true names and capacities when same
are ascertained, as well as the manner in which each fictitious
defendant is responsible.
D. UNNAMED CO-CONSPIRATORS
24. Various other co-conspirators, persons, firms and
corporations, who are not named as defendants in this Complaint,
conspired with the named defendants to violate the laws of
California as alleged in this Complaint, and made statements and
performed acts in furtherance of the conspiracy.
E. ACTS OF ALL
25. At all times relevant to this Complaint, each of the
defendants was an agent, employee, joint venturer, co-conspirator
and/or partner of each of the remaining defendants, and was at
all times acting within the course and scope of such agency,
employment, and/or partnership. Each defendant has ratified,
approved, and authorized the acts of each of the remaining
defendants with full knowledge of those acts.
III. DEFINITIONS
26. For purposes of this Complaint, the following terms
shall have the following defined meanings:
27. "Talent" shall mean directors, producers, actors, and
authors of books, stories and scripts and all other creative
personnel whose efforts are necessary to produce motion pictures
throughout the world. The word Talent as used in the motion
picture industry is well known and commonly understood, and the
words have the same meaning here.
28. "Standard net profits contracts" shall mean the
standard form contracts with riders attached which are drafted
and utilized by defendants to entice various Talent to render
their services in the making of motion pictures and which purport
to entitle Talent to a share of the net profits of a motion
picture to which the Talent contributes. Representative examples
of standard net profits contracts used by the defendants are
attached hereto as Exhibits C 1-8.
IV CLASS ALLEGATIONS
29. Plaintiffs bring this action both on behalf of
themselves and as a class action on behalf of all Talent (except
the defendants and their respective affiliates and co-
conspirators) who have entered into standard net profit contracts
with one or more of the defendants or their affiliates during the
period January 1, 1988 to the present. They are easily
ascertainable and are within the knowledge of each defendant
named herein.
30. All members of the class were injured in their business
or property by reason of the defendants' unlawful conduct as set
forth in the Complaint.
31. The defendants entered into standard net profit
contracts with numerous Talent purporting to entitle the Talent
to share in the "net profits" of motion pictures with which the
Talent were connected, making the members of the class so
numerous that joinder of all members is impracticable. Since the
class members may be identified from records regularly maintained
by the defendants and their employees and agents, the number and
identity of class members can be easily ascertained through the
defendants' own records.
32. Plaintiffs' claims are typical of the claims of each
class member. They, like all other class members, sustained
damages arising from defendants' violation of the California
Laws. Plaintiffs and the members of the class were similarly or
identically harmed by the same systematic and pervasive pattern
of anticompetitive conduct engaged in by the defendants.
33. Plaintiffs will fairly and adequately represent and
protect the interests of the members of the class, and have
retained counsel who are both competent and experienced in
antitrust and class litigation. There are no material conflicts
between the claims of the representative plaintiffs and the
members of the class that would make class certification
inappropriate. Counsel for the class will vigorously assert the
claims of all class members.
34. In this case, a class action is superior to all other
methods for the fair and efficient adjudication of this
controversy, since joinder of all class members is impracticable.
Furthermore, as the damages suffered by individual members of
the
class may be relatively small, the expense and burden of
individual actions makes it impossible for the class members to
individually redress the wrongs they have suffered. There will
be no difficulty in managing this case as a class action.
35. Common questions of law and fact exist as to all
members of the class and predominate over any questions affecting
solely individual members of the class. Among the questions of
law and fact common to the class are:
(a) Whether the defendants entered into a conspiracy,
contract or combination to fix, lower, maintain or stabilize the
prices they paid to Talent for their participation in the making
of motion pictures, in violation of State law.
(b) Whether the defendants entered into a conspiracy,
contract or combination to refuse to deal with Talent who would
not accept the defendants' standardized contract terms and prices
relating to their share of a motion picture's "net profits" for
their participation in the making of motion pictures, in
violation of State law.
(c) Whether the plaintiffs and the other members of
the class were injured in their business or property by reason of
the defendants' unlawful conduct.
(d) The appropriate class-wide measure of damages.
V. BACKGROUND OF THE INDUSTRY
A. HISTORY OF THE INDUSTRY
36. In the late 1890s, the motion picture first developed
from the union of still photography with the persistence-of-
vision toy, which made drawn figures appear to move. The early
films were mostly of still figures and had very little public
appeal.
37. On June 19, 1905, the United States public watched The
Great Train Robbery, a short silent film, in a theater that was
solely devoted to motion pictures. Prior to then, movies had
always been shown along with some sort of live entertainment. By
1908 an estimated 10 million Americans were paying their nickels
and dimes to see such films.
38. Motion pictures were so popular that thousands of
motion picture theaters called nickelodeons sprang up throughout
the country. This new industry was very profitable for the
founders of the movie picture industry. Young entrepreneurs such
as William Fox and Marcus Loewe saw their theaters, which
initially cost about $1,600 each, grow into enterprises worth
fortunes within a few years. Soon the demand arose for Talent to
make the movies to fill the demand of the consuming public.
B. ECONOMIC LEVERAGE OVER TALENT
39. The motion picture industry has a long history of
abusing Talent, and in particular of using economic power to deny
Talent the rights and earnings to which they are entitled.
40. The early movie studios, for example, as well as their
current successors, made every effort to insure that the salaries
of the Talent were kept as low as possible. The movie studios
began a course of conduct designed to stop Talent from reaping
the rewards from a competitive movie system by exerting
monopoly
power.
41. In the beginning, the names of the actors and actresses
in films were kept anonymous so as to keep them from acquiring
their own place in a competitive market. As the public's demand
for motion pictures increased, however, so did the public's
preference for certain actors and actresses. In order to combat
fear that public recognition would result in a demand by the
players for higher salaries, producers went to great lengths to
keep the identity of the actors anonymous by various different
means, including demanding the use of pseudonyms. It was not
until fan magazines began running stories about the identity of
the movie stars that the producers began promoting the names of
their actors.
42. Hollywood then embraced the star concept and between
1910 and 1948, movies companies established the star system as a
potent business strategy to provide increasing returns on
production investments. In 1918, America's two favorite stars,
Charlie Chaplin and Mary Pickford, both signed contracts for over
$1 million. However, most Talent did not have as much power as
Mr. Chaplin and Miss Pickford and earned substantially less.
43. By the 1930s and 1940s, even the major movie stars
suffered dramatic reductions in independence and incomes. Due to
the advent of talking movies, which destroyed the careers of many
silent stars who could not make the transition to sound, and the
economic depression of the 1930s, movies studios exercised
tremendous control over the actors. An increasing concentration
of monopoly power in the hands of the major movie companies left
the movie stars at the mercy of studio bosses. While in the
1920s, stars had often received a percentage of net movie profits
and substantial artistic control, Talent in the 1930s
and 1940s were forced into seven year exclusive contracts which
took away net profits and forced the Talent into limited maximum
salaries. Talent who objected to an assigned movie role risked
being suspended without pay for rejecting a role.
44. This star system allowed movie studios to greatly
profit from their movie stars by lending them out to other
studios for huge profits. For example, MGM lent out Clark Gable
for the making of Gone With the Wind and contributed money
towards production costs in exchange for the distribution rights
and a sliding scale percentage of the gross profits starting at
50%. Gable, one of the biggest stars of the era did not want to
do the movie, but his contract did not give him the right to turn
down parts. Gable received his standard salary per week for
playing the part although MGM gave him a small bonus in an act
of
generosity. By 1967, MGM had earned $75 million in rentals for
the movie. This practice highlights the transition of Talent
from artist to commodity in the eyes of the movie studios.
45. The first profit participation contract on behalf of
Talent was negotiated with Metro Goldwyn Mayer in 1934 on
behalf
of the Marx Brothers for two movies: "A Day At The Races" and
"A
Night At The Opera." That contract was a simple straightforward
one that netted the brothers 15 percent of all the money the
studio received for those movies.
46. Between 1947 and 1953 admissions to movie theaters
dropped dramatically. Talent, including many movie stars,
suddenly became expendable, and were released from studio
contracts to reduce overhead. While some popular stars used this
freedom to their economic advantage, the less popular Talent
found their incomes and marketability declining rapidly.
47. For some Talent, the results were tragic. In the
1950s, for example, Talent who refused to cooperate with the
witch hunts of the House Un-American Activities Committee
found
themselves blacklisted from the movie industry. However, the
studios were not above crediting others for the work that was
done by blacklisted artists and reaping the rewards of the
blacklisted Talent, further proof of their tremendous economic
power.
48. The modern-era of net profit participation in contracts
began in 1950 when Jimmy Stewart's agent, Lew Wasserman, was
able
to negotiate such a provision with Universal for the movie
"Harvey." Although such contracts had been executed in the early
history of film, this contract was the first one negotiated in
the post-war years when the studios were no longer the great
forces they had been in the past and the star system was
beginning to fall apart.
49. Over the years, the movie industry has refined its use
of creative accounting in dealing with Talent. For example,
during the 1950s the major studios would put together large
numbers of films and sell them as a package in foreign countries.
The package might include one or two big hits, but most of the
films would be grade B or lower. The hits would play all over
the foreign country, while the other movies would not even be
shown. But when it came time to divide up the profits, each of
the films in the package would get an equal portion. The result
was that the net profits participants in the "hits" got little or
nothing because their profits were artificially allocated to the
unsuccessful films. The participants in the unsuccessful films
typically also got nothing. The studios, on the other hand, got
the same amount of total return -- they just put the money in
different columns on their books, offsetting profits, wherever
earned, against losses, wherever earned, to make everything come
out as close as possible to "zero"
50. In the 1970s, the Securities & Exchange Commission and
the Internal Revenue Service investigated alleged tax
improprieties of PARAMOUNT and its then parent corporation,
Gulf
Western. There were serious questions of the accuracy of the
conglomerate's financial reports and other financial
improprieties such as expenses assigned to making movies. One
company auditor alleged that Gulf & Western altered profit
statements to withhold revenues that should have been reported.
In 1981, Gulf & Western signed a consent decree with the
government to refrain from such practices in the future.
C. HOLLYWOOD ACCOUNTING PROCEDURES
51. Under the net profit definition used by most of the
moviemaking studios, payment of profit participation is delayed
by a process of adding fees and costs associated with
distribution, production, prints, promotion, advertising and
whatever other overhead expenses they wish. Some studio
executives admit that they do everything possible to delay
payment of net profits, if any survive the interminable
deductions.
52. "It is to our benefit to delay paying on profits for as
long as possible. We earn interest on the float and the money
allows us to finance other ventures," according to a studio
executive (referred to as a bean counter) quoted in the June 5,
1995 issue of Variety, the entertainment world's leading trade
publication.
53. Attached or included in the standard contracts are
certain riders that break out the charges and expenses that the
studios deduct from gross revenues. Though the amounts of the
charges allocated in the net profit contract riders may vary from
contract to contract, there are nine categories that are
universally included:
(a) Distribut~ion Fees -- this is a set fee that is
used by the studios as being necessary to
underwrite the costs of maintaining distribution
offices and facilities. These are flat rates that
range from 30 to 40 percent of a movie's gross
receipts (30 percent for domestic distribution, 35
percent for the United Kingdom and 40 percent for
foreign distribution).
(b) Distribution Costs -- in addition to the fees that
are levied, the actual costs of distribution are
also allocated against the income side.
(c) Advertising -- this is the cost of advertising
and promotion of the film. This can include all
sorts of expense; for example, if a convention is
attended by a studio's promotion executives
assigned to the picture, those costs can be
allocated to the film's expenses under this
category. An arbitrary overhead fee, usually a
flat 10 percent is added in this category.
(d) Prints -- this is the cost of printing copies of
the movie, sometimes thousands of copies are
printed, and distributed free to friends of the
studio and others on the favored lists.
(e) Production Costs -- these are billed as direct
expenses whether there are any out-of-pocket costs
or not; these can and do usually include use of
studio facilities, cameras, vehicles or other
equipment based on a rate card set up for each
piece of equipment in the studio inventory. Money
paid to Talent receiving gross receipts
participation, which can be in the millions of
dollars, is also counted as a production cost.
Over and above all of this, an overhead charge of
15 percent is also added to the production costs
which results in double billing for most
equipment.
(f) Over-Budget Penalty -- for each dollar the film
exceeds its budget, an additional $1 ($2 total) is
charged as a cost of the film as defined in the
Talent net profit contract regardless of whether
or not Talent has any direct responsibility for
the overage and sometimes whether or not there was
an over-budget allocation.
(g) Taxes -- these are allocated as offsets against
income, whether the studio actually pays the taxes
or not. As an example, Japan charges a tax of 10
percent for any income taken from Japan to the
U.S., but when U.S. taxes are paid, this is a
credit against federal taxes.
(h) Political Lobbying Expenses -- allocated as
expenses against Talent's profit participants are
dues paid to trade organizations such as the
Motion Picture Association of America, which works
as the studios' lobbying group.
(i) Interest -- this is charged from the day
production starts and is levied against all
budgeted production and promotion costs generally
at the rate of 125 percent of the prime rate.
Accordingly, over and above charges of every
conceivable type - an additional interest is
tacked on.
54. The most glaring example of the continuing conspiracy
among the defendants is the handling of video revenue from a
movie, a source of income that often surpasses 50 percent of the
total income. The first studio to license a movie's video rights
and then to negotiate a net profit contract for the video income
was 20th Century Fox. In that contract, Fox artificially
allocated only 20 percent of the video income as revenues to be
reported to profit participants, thus preventing Talent from
participating in 80 percent of the income received from the
film's video contracts. That 20 percent share has become the
agreed upon standard for all of the other studios as well from
that day forward, and only the star category actors, a few
directors and seldom if ever a producer or writer are able to
negotiate a higher percentage.
55. At least one court has already ruled that standard net
profit contracts are contracts of adhesion; that the studios
refuse to negotiate in good faith over the definition of net
profits, and that the existing definition was unconscionable
because it subtracted numerous costs that were inflated or
unjustified .
D . COERCIVE EFFECTS ON TALENT
56 . The net profit riders attached to Talent's service
contracts, which display a startling similarity from studio to
studio, usually differ only in exactly the amount of overhead
costs that may be added to a film's expenses before those profits
can be calculated. This iS done through the use of the standard
form contract. The studios simply refuse to deal with most
creative talent who will not accept these form contracts, which
are offered on a "take it or leave it" basis.
57. One of the most recent examples of the effect of the
studio practices upon Talent involved the motion picture "Forrest
Gump," which had enjoyed the fourth highest gross income in the
history of the industry. Winston Groom, author of the book was
adapted to the screen, was told that despite a worldwide gross of
$660 million as of December of 1994, there had been no net
profit. The movie's producer, Steve Tisch, and the movie's
screenwriter Eric Roth, likewise had been coerced into
signing contracts with smaller upfront fees with promises of net
profit participation; neither had been paid any share of the
profits from the picture. This was despite the fact that
"Forrest Gump" had been chiefly responsible for its studio,
Paramount Pictures, increasing the studio's 1994 box office gross
income by 60 percent over the previous year, and boosting it from
sixth to third place in market share of the movie business.
58. Even when Talent has a famous name like syndicated
columnist Art Buchwald, the court system has been the only
recourse. It took Buchwald seven years of litigation to obtain
share of profits from "Coming to America," a movie based on
an idea and treatment Buchwald had submitted to moviemakers a
decade earlier. A settlement finally came for Buchwald.
59. In a coincidental demonstration of the practice's
pervasiveness, on Sept. 12, 1995, the day a settlement with
Buchwald was announced, another writer made public a Complaint
that Paramount had not been paid him any share of profits from
"Indecent Proposal," the movie starring Robert Redford and Demi
Moore that had grossed $250 million worldwide. Jack Englehard,
whose book was adapted for the movie, said Paramount had told
him
that "Indecent Proposal" still showed a deficit of $37.5 million
despite grossing a quarter of a billion dollars.
60. The net profit issue is not limited to one studio; it
is an industry-wide system used with little variation from studio
to studio. Warner Bros. Inc., the studio that held the largest
movie market share four out of the five years of 1989 through
1993, was accused of failing to pay any net profits to two
executive producers who worked for 10 years and helped create the
hugely popular "Batman" movie that starred Jack Nicholson and
Michael Keaton. Benjamin Melniker and Michael Udslan, the
complaining producers, were told by Warner Bros. that despite a
worldwide gross of $411 million that there had been no net
profits .
E. PRIOR VIOLATIONS OF ANTITRUST LAW -
COMMON
DESIGN PLAN AND SCHEME
61. The motion picture industry has a long history of
violating the antitrust laws with a similar course and conduct to
the acts alleged in the present case. In the 1920s, for example,
ten producers and distributors of motion pictures who controlled
6 0 percent of the motion picture market agreed among themselves
that they would only contract with motion picture exhibitors
according to the terms of a standard form contract where most of
the provisions are favorable to the studios. The United states
Government took legal action against the studios, and a court
ordered the studios to cease such activities. The matter was
appealed to the United states Supreme Court, which in the
landmark case of Paramount Famous Lasky Corp. v. United States
282 U.S. 30 ( 1930 ) ruled that the studios were engaged in a
conspiracy that violated the antitrust laws of the United states.
62. In spite of the warning from both the Justice
Department and the Supreme Court, the motion picture industry
continued to violate the antitrust laws. In the 1940s, for
example, various producers and distributors of motion pictures
entered into a wide variety of conspiracies in restraint of
competition, including a conspiracy to fix minimum prices the
public had to pay for admission to movie theaters, and a
conspiracy to include the same minimum admission price
requirements in all of their standard form contracts with movie
theaters. The producers and distributors also used standard
distribution contracts that discriminated in numerous ways
against small independent theaters in favor of large theaters
affiliated with the studios and with large groups of theaters.
Once again the United states Government had to take legal action,
and once again the United states Supreme court in United states
v. Paramount Pictures, Inc., et al. 334 U.S. 131 ( 1948) declared
most of the challenged acts and practices illegal under the
antitrust laws. The Supreme court noted that the defendants had
"marked proclivity for unlawful conduct" and ordered them to
bear the burden of showing that certain future actions came
within the law. In spite of these stern warnings from the
highest court in the land, the movie industry continues to act in
violation of the laws by continuing a common design, plan and
scheme to take advantage of the plaintiffs.
F. FRAUDULENT CONCEALMENT
63. Throughout the period set forth in this Complaint, the
defendants have fraudulently concealed their unlawful contract,
combination and conspiracy from the plaintiffs and the members of
the class.
64. In order to fraudulently conceal their contract,
combination and conspiracy from the plaintiffs and the members of
the class, defendants engaged, among other things, in the
following affirmative conduct throughout the period relevant of
this Complaint:
(a) defendants secretly discussed and agreed among
themselves, among other things, on the terms of their respective
contracts with Talent, and therefore on the prices to be paid to
Talent for their ideas and labor, and on their concerted refusal
to deal with Talent who would not submit to these unfair terms.
(b) defendants used communications which they believed
to be safe from detection and avoided communication which they
believed to be subject to detection.
(c) defendants used different wording in drafting
their standard net profit contracts, while adhering to the same
substantive terms that the defendants had secretly agreed upon,
in order to conceal their unlawful agreements.
( d ) In recent months, studio legal departments have
reacted to court decisions on Talent contracts by attempting to
place a new face on the old, discredited system. Studio lawyers
have been replacing the term "net profit" with some euphemisms '
like "net proceeds" or other terms designed to hide the fact that
the unconscionable practice continues.
65. Because of the active and fraudulent concealment of the
conspiracy and the illegal acts in furtherance of that conspiracy
that are outlined above, plaintiffs did not know and could not
have discovered the antitrust violations alleged in this
Complaint until shortly before they initiated this litigation.
Therefore, the running of any statute of limitations has been
suspended with respect to the claims alleged in this Complaint.
G. MARKET POWER
66. The movie industry is highly concentrated, with only a
few major American studios accounting for over 90% of dollar
volume of the revenue from the motion pictures made in the United
states. The major studios are all located in the same area of
Southern California, in and around Los Angeles. Defendants have
been able to exercise their market power in dealings with Talent.
H. THE STANDARD FORM CONTRACTS
67. Beginning at least as early as January 1, 1988, the
exact date being unknown to the plaintiffs, and continuing to the
present, pursuant to a conspiracy among themselves and their co-
conspirators, the defendants have developed and used standard
form contracts for purchasing intellectual property and labor
from Talent.
68. Virtually all of these standard form contracts contain
provisions for the Talent to receive a percentage of the "net
profits" of the motion pictures to which they contribute .
Although the contracts use different wording in defining "net
profits," the substantive provisions of the contracts, and the
substantive definitions of "net profits" contained in each of
them, are virtually identical. Among other things, these
standard net profit contracts contain nearly identical provisions
concerning the deduction of numerous different types of "costs"
from a motion picture's profits before the Talent can receive any
distributions under the contract. The use of nearly identical
net profit definitions by all of the major studios in their form
contracts is the result of an illegal agreement among the
defendants to use this definition. Attached hereto as Exhibit B
is a chart summarizing the net profit definitions of the standard
net profit contracts used by each of the defendants.
69. In many instances, the "costs" that are deducted to
determine "net profits" are grossly inflated and bear no relation
to reality. AS a result, no matter how successful the motion
picture, there are almost never any "net profits" to be shared
with Talent as promised by the contracts. Thus, the true purpose
of the defendants' conspiracy is to reduce the price they must
pay for the Talent they need to make motion pictures.
70. A small handful of extremely well-known Talent with
extremely strong bargaining power can negotiate gross profits
clauses to replace the net profits clauses of their contracts
with the studios. For the vast majority of Talent, however, the
contracts are offered on a take it or leave it basis, and are not
subject to negotiation. This is the result of an agreement among
the defendants and their co-conspirators to refuse to deal with
Talent, except for a small number of extremely well-known Talent,
who will not accept the standard net profit contract.
71. From the beginning of the conspiracy to the present,
the defendants have continued to discuss and agree upon a
common
and grossly unfair definition of "net profits," or some
euphemistic word with the same meaning, to include that common
definition in all of their standard net profit contracts, and to
collectively refuse to deal with any Talent ( except a handful of
very famous Talent) who will not submit to the oppressive "net
profits" clause of the studios ' form contracts . AS a result of
defendants' ongoing conspiracy, the price paid to Talent for
their ideas and services has been kept artificially low, and the
Talent has been deprived of their rightful share of the profits
of the motion pictures that they made possible.
VI. EFFECTS AND RESULTING INJURY TO PLAINTIFFS
AND THE CLASS
72. The defendants' illegal combination and conspiracy had
the following effects, among others:
(a) Monies paid to plaintiffs and other members of the
class for their ideas, labor, and intellectual property were
fixed, lowered and maintained at artificial and non-competitive
levels .
(b) Talent was deprived of free and open competition
for their ideas, labor, and intellectual property.
(c) Competition for Talent among the defendants and
their co-conspirators was restrained.
73. During the period covered by this Complaint, plaintiffs
and other members of the class sold millions of dollars worth of
ideas, labor, and intellectual property to the defendants. By
reason of the actions described in this Complaint, plaintiffs and
the class members received less for their ideas, labor, and
intellectual property than they would have been paid in the
absence of the illegal combination and conspiracy and, as a
result, have been injured in their business and property and have
suffered damages in an amount presently undetermined.
FIRST CAUSE OF ACTION
(Price Fixing)
(Business & Professions Code Section 16720 et seq.)
74. All foregoing paragraphs of this Complaint are
incorporated herein by reference.
75. As set forth above, defendants conspired to fix,
depress, maintain and stabilize prices paid to Talent for their
ideas, labor, and intellectual property to be used in the making
of motion pictures in the United States, in violation of
Business & Professions Code Section 16720 et seq. (the
Cartwright Act).
76. Plaintiffs and the class have been injured in their
business or property by the defendants' antitrust violations as
alleged in this Complaint.
77 . Plaintiffs and the other members of the class are
entitled to recover three times the amount of their actual
pursuant to Business & Professions Code 16750(a).
damages.
78. Plaintiffs and the class are entitled to recover
reasonable attorneys+ fees and litigation, pursuant to Business
Professions Code 16750(a).
79. Plaintiffs and the class are entitled to recover
pre judgment interest on their actual damages from the date of
service of this Complaint until the date of entry of judgment in
this case, pursuant to Business & Professions Code Sections
16750(a) and 16761.
WHEREFORE plaintiffs and the other members of the class
pray
for relief as set forth below.
SECOND CAUSE OF ACTION
(Boycott/Concerted Refusal to Deal)
(Business & Professions Code Section 16720 et seq. )
80. All foregoing paragraphs of this Complaint are
incorporated herein by reference .
81 . As set forth above, defendants conspired and agreed
among themselves to refuse to deal with any Talent, except for a
small number of very famous Talent, who would not submit to the
standardized net profits contract terms that the defendants
jointly agreed to impose on Talent, in violation of Business &
Professions Code Section 16720 et seq. (the Cartwright Act).
82. One purpose of this boycott and concerted refusal to
deal except on particular agreed terms was to facilitate and
enforce the defendants ' unlawful agreement to fix, depress,
maintain and stabilize prices paid to Talent for their ideas,
labor, and intellectual property to be used in the making of
motion pictures in the United states, and to force adherence to
the terms agreed upon among the defendants and their co-
conspirators .
83. Plaintiffs and the class have been injured in their
business or property by the defendants' antitrust violations as
alleged in this Complaint.
84. Plaintiffs and the other members of the class are
entitled to recover three times the amount of their actual
damages, pursuant to Business & Professions Code 16750 ( a ) .
85 . Plaintiffs and the class are entitled to recover
reasonable attorneys' fees and litigation costs upon entry of
judgment against any of the defendants, pursuant to Business
Professions Code 16750(a).
86. Plaintiffs and the class are entitled to recover
pre judgment interest on their actual damages from the date of
service of this Complaint until the date of entry of judgment in
this case, pursuant to Business & Professions Code 16750(a)
and 16761.
WHEREFORE plaintiffs and the other members of the class
pray
for relief as set forth below.
THIRD CAUSE OF ACTION
( For Breach of Contract )
87. All foregoing paragraphs of this Complaint are
incorporated herein by reference.
88. By executing the standardized net profit contracts as
hereinbefore described and of which representative Agreements are
attached hereto as Exhibits Cl to 8, plaintiffs and defendants
entered into valid and enforceable written contracts. These
contracts are standardized throughout the industry and the
substantive provisions of the contracts, and the substantive
definitions of "net profits" contained in each of them, are
virtually identical.
89. In each of the contracts, defendants agreed to pay
plaintiffs a share of the "net profits" of the motion pictures
with which the plaintiffs were connected.
90 . Plaintiffs have performed fully each and all of the
conditions, covenants and obligations imposed upon them under
the
terms of the Agreements, except to the extent excused therefrom.
91. By reason of the conduct described above, defendants
have materially breached the Agreements in numerous respects.
Such conduct includes, but is not limited to, failing to pay the
net profits of the movie to plaintiffs, but instead in a manner
common to all plaintiffs improperly inflating expenses and/or
improperly deducting items as expenses.
92 . AS a direct and proximate result of defendants '
material breaches of the Agreements, plaintiffs have suffered
monetary damages in an amount that is known by defendants who
have concealed said amount from plaintiffs, but which amount
exceeds the jurisdictional limits of this Court.
WHEREFORE plaintiffs and the other members of the class
pray
for relief as set forth below.
FOURTH CAUSE OF ACTION
(For Breach of the Implied Covenant of Good Faith
and Fair Dealing)
93. All foregoing paragraphs of this Complaint are
incorporated herein by reference.
94. By executing the Agreements alleged herein, plaintiffs
and defendants entered into written contracts. Plaintiffs thus
reposed trust and confidence in defendants to, among other
things, deal with them fairly and in good faith, and not to
wrongly deprive them of their contractual compensation, including
but not limited to, the right to share in the profits of the
movies. Defendants knew of and accepted such trust and
confidence at the time they entered into the Agreements .
95. Plaintiffs have performed fully each and all of the
conditions, covenants and obligations imposed upon them under
the
terms of the Agreements, except to the extent excused therefrom.
96. By virtue of the wrongful acts of defendants, and each
of them, in failing to pay net profit proceeds to plaintiffs,
defendants breached their duties of good faith and fair dealing.
97 . As a proximate result of defendants' actions,
plaintiffs have suffered monetary damage in an amount within the
jurisdiction of this Court, together with interest thereon.
98. At all times herein alleged, defendants acted
willfully, wantonly, with oppression, fraud and/or malice, and
with a conscious disregard of the rights of others, such that
plaintiffs request that the trier of fact, in the exercise of its
sound discretion, should award plaintiffs additional damages for
the sake of example and in a sufficient amount to punish said
defendants for their conduct, in an amount reasonably related to
plaintiffs' actual damages and defendants' wealth and
sufficiently large to be an example to others and to deter these
defendants and others from engaging in similar conduct in the
future.
FIFTH CAUSE OF ACTION
(Unjust enrichment)
99. All foregoing paragraphs of this Complaint are
incorporated herein by reference.
100. As a result of the wrongful acts of defendants in
failing to pay plaintiffs net profits proceeds, defendants have
been unjustly enriched at the expense of plaintiffs by keeping
monies which should have been paid over to plaintiffs.
101 . If defendants are allowed to keep these monies, they
will unjustly benefit from their actions and the plaintiffs will
unjustly suffer a loss.
102. By virtue of defendants' wrongful acts, and their
resulting wrongful gain of the funds to which plaintiffs are
entitled, defendants hold these funds as a constructive trustee
for the benefit of plaintiffs.
WHEREFORE plaintiffs and the other members of the class
pray
for relief as set forth below.
SIXTH CAUSE OF ACTION
(Imposition of constructive trust
and for an accounting)
103. All foregoing paragraphs of this Complaint are
incorporated herein by reference.
104. Based upon the contracts entered into between
plaintiffs and defendants, plaintiffs have an interest in funds
which, as alleged herein, should have been paid over to them.
The specific amount of these funds is unknown to plaintiffs and
cannot be ascertained without a full and complete accounting, the
means of which are within the knowledge of the defendants.
Plaintiffs are informed and believe and on that basis allege that
the amounts owed exceed the minimal jurisdictional limits of this
Court .
105 . Through the breach of their duties to plaintiffs and
the wrongful acts which they committed as alleged herein,
defendants have wrongfully appropriated and failed to pay to
plaintiffs the funds to which plaintiffs are entitled.
Plaintiffs have been damaged by their failure to receive the
monies.
106. By virtue of defendants' wrongful acts, and their
resulting wrongful gain of the funds to which the plaintiffs are
entitled, defendants hold these funds as a constructive trustee
for the benefit of plaintiffs.
WHEREFORE plaintiffs and the other members of the class
pray for relief as set forth below.
SEVENTH CAUSE OF ACTION
(For Declaratory Relief)
107. All foregoing paragraphs of this Complaint are
incorporated herein by reference.
108. An actual controversy has arisen and now exists between
plaintiffs and defendants in that plaintiffs contend and
defendants deny that:
(a) The Agreements entered into by plaintiffs are
standardized contracts drafted by defendants, a
party with superior bargaining strength, and
imposed by defendants on plaintiffs who lacked
effective bargaining power and who were given the
opportunity only to accept or reject the contract,
and the Agreements therefore constitute an
unenforceable contract of adhesion.
(b) That certain provisions of the Agreements as more
fully set forth herein were harsh, oppressive and
unduly one-sided, and thus unconscionable at the
time the Agreements were entered into and should
not be enforced .
(c) The unconscionable provisions of the Agreements
taken both in isolation and combined, include, but
are not limited to, the following:
(1) charging a fixed percent overhead on
operational allowances;
(2) charging a fixed percent advertising overhead
not in proportion to actual costs;
(3) charging a fixed rate overhead not in
proportion to actual costs;
(4) charging interest on negative cost balance
without credit for distribution fees;
(5) charging interest on overhead; and
(6) charging an interest rate not in proportion
to the actual cost of finance .
(d) The unconscionable provisions of the Agreements,
should be declared illegal and given no legal
effect by the Court .
WHEREFORE plaintiffs and the other members of the class
pray
for relief as set forth below.
EIGHTH CAUSE OF ACTION
(For Violation of Business & Professions Code Section 17200
et seq. )
109. All foregoing paragraphs of this Complaint are
incorporated herein by reference.
110. The wrongful conduct of defendants, and each of them,
constitutes a violation of Business & Professions Code 17200 et
seq., which prohibits unfair business practices , including
unlawful, unfair or fraudulent business practices. This conduct
includes, but is not limited to, unlawfully compelling Talent
that lack bargaining power to enter into adhesive agreements
containing standardized net profit definitions which are
unconscionable in whole or in part.
111. Defendants' primary business involves the production
and distribution of theatrical motion pictures, and the
Agreements related to and occurred in the course of defendants '
business .
112. As a direct and proximate result of .defendants' unfair
competition, defendants have acquired and continue to acquire
labor, ideas, and intellectual property from plaintiffs.
113. Pursuant to California Business & Professions Code
17204, plaintiffs are entitled to restitution and/or other relief
necessary to restore to plaintiffs any money or property, which
were acquired by means of the unfair and unlawful conduct alleged
herein .
WHEREFORE plaintiffs and the other members of the class
pray
for relief as set forth below.
NINTH CAUSE OF ACTION
(For Injunctive Relief )
114. All foregoing paragraphs of this Complaint are
incorporated herein by reference.
115. Beginning in or around January, 1988 and continuing to
the present time, as described herein above, Defendants have
unlawfully and wrongfully engaged in a conspiracy to cheat Talent
out of their rightful share of the profits of the motion pictures
that they made possible by forcing them to enter into
unconscionable contracts and refusing to deal with Talent who
refused to agree to such contracts.
116. The Defendants' continuing wrongful conduct against
Plaintiffs, unless and until enjoined and restrained by order of
this Court, will cause great and irreparable harm to the
Plaintiffs in that they will continue to be forced to accept
unconscionable terms or will be unable to obtain employment in
the motion picture industry.
117. Plaintiffs have no adequate remedy at law for the
in juries that are threatened in that pecuniary compensation would
not afford adequate relief and/or it would be extremely
difficult to ascertain the amount of compensation that would
afford adequate relief.
WHEREFORE plaintiffs and the other members of the class
pray
for relief as set forth below.
PRAYER FOR RELIEF
Plaintiffs and the class pray for relief as follows:
(a) That the unlawful combinations and conspiracies
alleged in this Complaint be adjudged and decreed to be in
unreasonable restraint of trade and commerce and in violation of
Business & Professions Code Section 16720 et seq.
(b) That the defendants, and each of them, be enjoined
from continuing the conspiracies, and all acts in furtherance of
those conspiracies, as alleged in this Complaint, including but
not limited to, the use of the standard net profit contracts and
definitions and the refusal to deal with Talent who will not
submit to those terms.
(c) That the plaintiffs and the class be awarded
compensatory and general damages according to proof.
(d) That the plaintiffs and the class be awarded three
times their actual damages.
(e) That the plaintiffs and the class be awarded
pre judgment interest at the maximum legal rate.
(f) That the plaintiffs and the class be awarded their
costs of this suit.
(g) That the plaintiffs and the class be awarded
reasonable attorneys fees .
(h) That punitive damage be awarded according to
proof.
(i) For a declaration that the terms of the Agreements
set forth above are unconscionable as according to proof.
(j) For an order that defendants should hold the funds
to which plaintiffs are entitled in trust for plaintiffs.
(k) For an accounting on each of the standard form
contracts according to proof.
(l) That the plaintiffs and the class be awarded such
other and further relief as the Court deems just and proper.
DATED: November , 1995.
By :
JOSEPH W. COTCHETT
GIRARDI & KEESE
By :
THOMAS GIRARDI
ENGSTROM, LIPSCOMB & LACK
By :
WALTER J. LACK
Attorneys for Plaintiffs
And the Class
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