Contracts, The Hollywood Climate

From Media & Entertainment Law Wypadkis

Contents 1 The Movie Industry, Then and Now 2 Negotiating Tactics & Strategies (Litwak ch. 10) 3 Hollywood History 4 Contract Issues - Cases 4.1 Interpretation 4.1.1 Donahue v. Artisan 4.2 Oral Agreements 4.2.1 Main Line Pictures v. Basinger

The Movie Industry, Then and Now

• Moguls
  • founded the industry
  • tough businessmen out to make a buck
  • tyrants who ran their studios with iron hands – changed stars names, told them what their next movie would be and loaned them like chattel
• Studio Executives
  • college-educated men and women with law degrees and MBA’s who run studios
    • dealmakers not filmmakers
  • make decisions rationally
  • invest in state-of-art technology to improve picture quality
  • have many types of market research to help them
  • promote through sophisticated ads, merchandising tie-ins, slick music video and websites
• Downfall of the Studios
  • 1948 – Anti-Trust divested studios of their theater chains
  • 1950’s – television
    • Studios began producing for television and cable
  • Studios are now conglomerates or are owned by conglomerates

Negotiating Tactics & Strategies (Litwak ch. 10)

• Honor code among “players”
  • Top Hollywood dealmakers: agents, attorneys, studio executives, producers
    • serve an unwritten code of behavior
    • dishonesty is not respected
    • oral agreements are relied upon
      • Ex. an agent may commit his client to a project and the written agreement won’t be signed until the project is done
    • Theme – Hollywood Lawyers do a poor job industry pressures keep them from tying things up like a lawyer from the outside world would
• Terminology
  • High-balling: asking for excessive amount of money or positioning oneself favorably for compromise
  • Low-balling: suggesting an unduly low budget amount
  • Eat-in clause: provides that producer’s profits and/or fees are eaten into if the film goes over budget
  • Unwritten rule: everyone is entitled to modest raise over last deal
    • Substantial raises only if artist has recently won Academy Award or starred in blockbuster film
• Techniques to induce a studio to make a deal
  • Other buyers are interested
    • you do this through the grapevine or trade papers
  • play into an executive's desire to see a project first
  • Bargain: can be prestige film that cost little and have Oscar potential
  • offer the project as a way to build a relationship with an up and coming star
  • Hot topic: subject that everybody is talking about
    • Studios decline if television likely to produce movie first (lower budgets, faster production on TV movies)
    • TV limited subject matter and limited budget prevents exotic locations, sets, etc.

Hollywood History

The original founders were big gamblers and now everyone is trying to avoid risk and there are big board of directors that make large decisions based on trying to find sure hits. But the new studios aren’t more profitable than the old studios. Dealing with Studios- Other Buyers are Interested- When studios hear that their counterparts in other studios are interested then they become even more interested. Of course you can’t directly inform a Columbia executive of Fox’s interest in your project and so they will be suspicious. So the masters of this technique use trade papers and grapevine to spread the word that they have a hot project. See Project First- If your script looks like it has been rejected everywhere, buyers may assume that it can’t be any good. So spruce it up and make it different and make it a big deal that they are the first ones to look at it, everyone wants to be first. If you have old projects and sell one to Steven Spielberg, you can re-sell your old projects as a successful writer who just made a deal with a big shot. Building Relationships- Since executives come and go, they are usually looking out for their next job so they want to build relationships with important starts, directors and writers. So one way a smart dealmaker knows that it will be appealing is to present it as an opportunity for the executive to develop a relationship with an up-and-coming star.

Contract Issues - Cases

A court can decide whether language in a contract is ambiguous. If reasonable minds can differ than it can be enough to send it to a jury Donahue. You can’t back out of a deal in Hollywood that was made orally because so many people follow the honor system and do not use proper documentation Basinger.

Interpretation

Donahue v. Artisan

2002 U.S. Dist. LEXIS 5930 (S.D.N.Y 2002) - District Court District Judge Koeltl

• FACTS: "Blair Witch" The 3 main characters from the original Blair Witch movie signed a contract with Haxan so that Haxan could use their images (which included childhood photos) in the movie. Haxan then sold to Artisan, who proceeded to make a sequel. In promotion of the sequel, Artisan used images of the main characters from the original movie.
• ISSUE: Artisan says that they can use the images because they have a contract that says that they have the rights to use the images, plaintiff's say that was only for the 1st film.
  • the contract was based on a form contract
  • it had a pay or play clause
• REASONING:
• Applying NY law:
  • 1) The Court decides whether the contract is ambiguous or unambiguous ***- unambiguous – has a definite and precise meaning unattended by danger of misconception in the purport of the contract itself and concerning which there is no reasonable basis for the difference of opinion
    • - reasonable minds could not differ
    • - a contract isn’t ambiguous because the parties urge different interpretations in litigation
  • 2) If the Court finds the contract is unambiguous, it must give effect to the contract as written and may not consider extrinsic evidence to alter or interpret its meaning
  • 3) If the Court finds it ambiguous, it is for the jury to decide
    • - if the contract is subject to more than one reasonable meaning and where extrinsic evidence of the parties’ intent exists Artisan argued that the first sentence of a paragraph was a broad grant of rights but the plaintiff’s argued that the limiting language would make the rest of the language superfluous.
• "It is agreed and understood that Haxan retains all rights to the results and proceeds of Heather’s services to Haxan. Haxan retains the rights to dub into any language and to hire another actress for this purpose. Haxan retains control of all tie-ins and merchandising rights. It is understand that as long as Haxan pays Heather, Haxan is not obligated to pay Heather."
  • Canon of Construction of Contracts – give meaning to every sentence (signal a future judge that the next sentences aren’t meant to limit the previous by using language such as “including but not limited to OR for emphasis but not by way of limitation”, etc.)
  • The Legal Work was Amateurish
    • - think about contingent futures such as a sequel
    • - added complication – using her real name
    • o you can’t get all the rights to someone’s name = unconscionable
    • o she has a right to publicity
• HOLDING: The argument is that "all rights" gave them broad rights, but the next sentence says the same thing - so it would be repetitive and the court won't read something in that would make it repetative - this is Contract Lesson #1 - the court will interpret to give everything meaning and not ot make something superfluous - so use limiting language
  • Johnson said that if the contract had used a false name, there would be no claim, but they used her real name.
  • Summary judgment for Artisan was innapropriate - Proper interpretation of contract is issue for finder of fact and cannot be settled by summary judgment

Entertainment Terms from class discussion:

- “Pay or Play Clause” –(if the film does not get made, or if the studio casts a different actor) – what are the expectation damages? Courts tend to not want to entertain increased marketability damages because they are very speculative – “As long as we pay you, we are not obligated to play you.” The damages are limited to the money set forth in the contract.

• Courts will, when interpreting breach of contracts, generally award actual damages in the form of unpaid wages, but are hesitant to award speculative damages (for exposure, increased marketability, etc.)
• Courts will not award specific performance to force employee to do work, but will force employer to use employee
• Limits damages to the money awarded in the contract
• Can prevent summary judgment because expert will be required to interpret meaning of clause

- “Increased Marketability” – the mere starring in a film can get an actor new jobs or increased pay for their next film

- “Negative Pickup” – the riskiest way to finance a film and market it – where someone produces the film, films it, cuts it, and then some studio picks it up and distributes it (like independent film) – “negative” because the post-production product of the film is the actual negative of the film itself – it is the studio that picks it up who has to produce the positive and distribute it

• This is inferred from this case

Oral Agreements

Main Line Pictures v. Basinger

Main Line Pictures, Inc. v. Basinger (Cal. App 1994) (Boxing Helena) Judge Grignon

• Basinger enters into an oral agreement (there is an unsigned deal memo) to act in Boxing Helena, things are discussed, documents are passed back and forth; Basinger gets a new agent and they say don’t do the film; she pulls out
• Goes to trial for breach of contract
• Basinger and her loan-out corporationappealed from an $8 million jury verdict against them because the verdict form failed to differentiate between Basinger and/or Might Wind
• Need to decide if Mighty Wind and Basinger can be separated at trial or if they are the same
• The problem is the judgment is against “Basinger and/or Mighty Wind” which is ambiguous as to liability.
• No alter ego argument was made to pierce the veil of the corporation and show if they are separate or not
• Phillips gets the memo, annotates it, and sends it back to Wyman, she also noted there is substantial nudity “KB ok with it…no frontal nudity – nothing graphic – more subliminal”
• Everyone backdates in Hollywood
• It is not unusual to enter into agreements in Hollywood without ever really obtaining signatures on the contracts
• The Industry Climate is such that everyone really just goes forward with less than desirable documentation – there is no downside to executive producers pushing their lawyers into agreements without proper documentation; even when numerous lawsuits may follow
• Issues: mainly, the and/or statement of the jury verdict and the judgment
  • The term and/or is inherently ambiguous
    • if you use and/or in one place and don’t in another, the court will probably think you meant something different
    • the court refused to just take the Hollywood culture of doing things this way and ignore the law
  • ct. said it doesn’t interpret an ambiguous jury verdict when it cannot be determined which party is liable and when it leaves open the possibility of numerous conclusions, the court will not reach its own
  • the result of a jury verdict as to liability is a failure to make a finding on a critical issue with and/or – only if the options are synonymous will it not be ambiguous
  • a corporation is a legal entity which is distinct from its shareholders and officers
  • loan out corporations are not sham entities
  • only if Basinger is the alter ego for Might Wind, will she be liable
    • Main Line didn’t rely on this theory and didn’t establish the alter ego factors
      • number and identity of the shareholders, directors or officers
      • extent of capitalization
      • compliance with corporate form and formalities
  • The appellate court here says, whoa you can’t just ignore the law, it actually means something and it needs to be followed
  • There is no power given to the “this is how we do it, don’t worry about it” culture

“Loan Out” – many bigger people (directors, actors) may use this because their accountant advises them to do so for tax purposes – the loan out says you hire the corporation and they then loan the actor to the film for production – clearly the production company wants remedies against the actor for non-performance if necessary

“Deal Memo” – short document that contains a lot of bullet points, very choppy outline of the agreement – these are often signed – often contain a clause where the parties agree to enter into the long-form at a later date

• this is a contract though in Hollywood, it is called an agreement