EXCLUSIVE: The WGA East and West have told a federal judge that they’ve had to spend “millions of dollars” to help find work for thousands of writers who fired their agents last year as part of the guilds’ ongoing efforts to end packaging fees.
“The Guilds have been forced to expend millions of dollars to replicate services the Agencies would otherwise provide,” they said in their latest court filing (read it here), which is intended to show that they have suffered real damages in their battle against the Big 3 agencies’ alleged price-fixing practices. “The Agencies’ refusal to forgo packaging fees has also forced the Guilds to expend over a million dollars to create and administer a website to replace the representational services previously provided by the Agencies,” they said.
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In April 2019, the WGA ordered its members to fire their agents who refused to sign its agency code of conduct, which banned packaging fees – money the studios pay the agencies to package the talent on their films and TV shows. Last July, the WGA launched a Staffing and Development Platform to help its newly agentless writers find work, and then debuted an enhanced online staffing platform two months ago.
WME, CAA and UTA are seeking to dismiss the guilds’ lawsuit on grounds that the WGA does not have standing to bring the suit, saying that the alleged injury the guilds say they’ve suffered by having to help find work for their agentless members is “self-inflicted.” In the agencies recent motion to dismiss the guilds’ suit entirely, they said that “the Guilds allege that they have spent money to create a self-designed staffing system to replace services formerly performed by talent agents, including those at the Agencies here. Running an independent staffing service is of course a decision made by the Guilds, not a choice forced upon them by any conduct of the Agencies. This fact alone dooms any claim of Article III standing” under the Unfair Competition Law.
But the guilds, in their latest opposition to the Big 3’s motion to dismiss their suit, said that “organizational standing requires an entity to demonstrate only that the defendant’s actions run counter to the organization’s purpose, that the organization seeks broad relief against the defendant’s actions, and that granting relief would allow the organization to redirect resources currently spent combating the specific challenged conduct to other activities that would advance its mission.”
On April 27, U.S. District Court Judge Andre Birotte Jr. threw out major portions of the WGA’s lawsuit, ruling that the guild lacks antitrust standing to pursue its federal price-fixing claim; lacks organizational standing to bring claims for breach of fiduciary duty and constructive fraud on behalf of its members; lacks Article III standing to bring an Unfair Competition Law cause of action on its own behalf; failed to plead racketeering activity by the agencies, and failed to state claims upon which relief can be granted with respect to its group boycott claims.
The judge, however, allowed the guild to proceed with its state price-fixing claim and will allow several individual plaintiffs to pursue their claims for breach of fiduciary duty, unfair competition and breach of contract.
Since then, the WGA has amended its complaint, followed in short order by the Big 3 agencies filing a motion to dismiss all the guild’s remaining claims that the judge had allowed to go forward. And now the guilds have filed a motion in opposition to the agencies’ motion to dismiss its remaining claims.
“The Agencies’ motion to dismiss should be denied because the First Amended Consolidated Counterclaims (FACC) include plausible, non-conclusory allegations that correct the deficiencies this Court identified in its prior order,” the guilds said in their latest filing.
“First,” the guilds maintain, “the FACC establishes the Guilds’ associational standing to bring fiduciary duty and constructive fraud claims against agents – fiduciaries under California law – in three key ways: (1) The FACC alleges the specific ways that an inherent, blatant conflict of interest exists in every packaging fee arrangement (including because higher writer pay directly reduces Agencies’ profit sharing). (2) The FACC plausibly and nonconclusorily alleges that the Agencies, despite being fiduciaries, have a uniform policy of failing to disclose the existence of that conflict or the material terms of the packaging arrangement as required for informed waiver. And (3) the FACC makes clear that the claims are brought as equitable claims for injunctive relief only and not as tort claims.
“Second, the FACC establishes the Guilds’ Article III standing by alleging specific injuries to the Guilds and their members that have continued despite the Guilds’ adoption of the Code of Conduct and that will be remedied by the injunctive relief they seek. Third, the FACC alleges the Agencies’ unlawful nondisclosures with the specificity required for constructive fraud claims involving fraudulent omissions. Fourth, and finally, the Agencies have not satisfied the standard to justify reconsideration of this Court’s prior holding that Counterclaimants have standing under the Cartwright Act. In any event, that holding was correct. The Agencies’ attack on this Court’s prior holding is based on outdated federal cases contrary to the applicable California standard.”
Initially, the guilds argue, their FACC “plausibly alleges the existence of an inherent, blatant conflict of interest, which must be disclosed, in every single packaging fee arrangement,” and that “every packaging fee arrangement creates an inherent conflict of interest between the Agency’s interest in maximizing its profit participation, and its writer-client’s interest in maximizing her own compensation.”
This is true, the guilds say, because the third component of the agencies’ allegedly standard 3-3-10% packaging fee is based on so-called “gross profits,” and as such, “any amount paid to writers as compensation directly reduces the amount the Agency receives. In other words, in every packaging fee arrangement, higher payments to writers result in lower potential profits to the fiduciary – the Agency.
“Similarly, the payment of the first component of the packaging fee from production budgets diverts financial resources that otherwise could be used to pay writers more or hire additional writers – another direct, inherent conflict of interest that exists in every package agreement.
“The Agencies could disclose these inherent conflicts and obtain waivers from their clients. Instead, as a matter of uniform policy, the Agencies not only fail to disclose to their clients even the existence of these inherent conflicts, but also continue to contend that packaging fees are beneficial to their clients.”
Because of that, the guilds say, they have “associational standing to seek declaratory and injunctive relief – not damages – on behalf of their members to prevent the Agencies from continuing these practices. The Guilds allege these practices harm all the Agencies’ writer-clients by depriving them of information they are entitled to know as principals in the fiduciary relationship.”
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