Antitrust Law Daily Federal antitrust counterclaims dismissed in dispute between Hollywood writers’ union and talent agencies
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Tuesday, April 28, 2020

Federal antitrust counterclaims dismissed in dispute between Hollywood writers’ union and talent agencies

By Robert B. Barnett Jr., J.D.

Most of the unions’ counterclaims were dismissed, with the most important exception being a counterclaim for per se price-fixing under the California Cartwright Act.

In a suit by Hollywood talent agencies against unions involving the representation of movie and TV writers, in which the unions counterclaimed that the agencies conspired to harm the union and its members by selling packages (combinations of writers/actors/directors) to the studios that harmed the writers, the unions’ counterclaim for per se price fixing under the Sherman Act was dismissed without leave to amend because the unions lacked antitrust standing, given that their injuries were derivative, the federal district court in Los Angeles has ruled. The court also dismissed, but with leave to amend, the unions’ counterclaims for per se group boycotts under the Sherman Act and the California Cartwright Act because the allegations showed at most participation in trade association meetings rather than a horizontal agreement among competitors. One of the few counterclaims to survive was a claim for per se price fixing under the California Cartwright Act, which alleged that the agencies agreed to fix the packaging fee structure, causing the unions to suffer reduced compensation and lost employment opportunities (William Morris Endeavor Entertainment, LLC v. Writers Guild of America, West, Inc., April 27, 2020, Birotte, A.).

Background. In 2019, the Writers Guild of America (WGA) implemented a "Code of Conduct" that prevents talent agencies from representing writers if the agencies (1) "package" talent to studios in exchange for packaging fees, and (2) affiliate with companies that produce or distribute content. Packaging refers to a long-standing practice through which talent agencies provide a "package" of talent (e.g., writers, actors, and directors) to a studio in exchange for packaging fees. Because the talent agent William Morris refused to agree to the Code of Conduct, WGA allegedly threatened its members with expulsion and other union discipline if they continued as clients of William Morris. WGA also allegedly coerced certain talent agencies to join its illegal boycott under the threat of losing their writer-representation businesses. Approximately 1,300 writers and showrunners fired William Morris because WGA told its members to boycott the agency.

The dispute ultimately evolved into three of the largest Hollywood talent agencies—William Morris, Creative Artists Agency, and United Talent Agency—on one side and two labor unions—Writers Guild of America, West, and Writers Guild of America, East—on the other side. The talent agencies filed suit, alleging violations of the Sherman Act on the ground that the boycott to enforce the allegedly unlawful bans was nothing more than a "power grab" masquerading as a legitimate exercise of union authority. The court denied the WGA’s motion to dismiss, allowing the claims to move forward. The unions filed 14 counterclaims, including per se price-fixing under both the Sherman Act and the California Cartwright Act, per se group boycotts under both the Sherman Act and the California Cartwright Act, and claims for racketeering and fraud. The agencies filed a motion to dismiss.

Federal price-fixing. The agencies sought dismissal of the per se price-fixing counterclaim under the Sherman Act on the grounds of lack of antitrust standing. To show antitrust standing from an antitrust injury, one requirement is that the injured party be a participant in the same market as the alleged antitrust offender. But the unions did not participate in the same market and thus suffered a derivative injury only. The unions neither bought nor sold packages, nor did they otherwise participate in any market that buys or sells packages. The studios bought packages from the agencies. As a result, the injuries that the unions alleged—decreased profits, decreased employment opportunities, and lower union dues—all arose from the allegedly higher prices paid by production studios that employ writers. But because the unions had no direct injury, they had no antitrust injury. The court, therefore, agreed to dismiss the Sherman Act claim with prejudice.

State price-fixing. As for the state per se price-fixing claim, the unions alleged that the agencies entered into a continuing agreement to fix and maintain a packaging fee structure and to charge the same base license fees to studios. The counterclaim contained specific allegations of a meeting at which the prices were fixed, and it alleged that the unions suffered injury from the conspiracy in the form of reduced compensation and employment opportunities. These allegations, the court said, were sufficient to nudge the claim "across the line from conceivable to plausible." As a result, the court denied the motion to dismiss the state per se price-fixing claim.

Group boycotts. The federal and state group boycott claims were evaluated together. The counterclaims stated that the agencies entered into a horizontal agreement to (1) take a common stance with the unions in negotiations over a new franchise agreement, (2) refuse to negotiate with the unions individually, (3) threaten lawyers and talent managers with litigation, and (4) blacklist any agency that agreed to the Code of Conduct. The actual allegations, however, only showed that a trade association of talent agents (1) expressed its disapproval of individual negotiations, (2) sent two letters warning of legal consequences, (3) stated that agreeing to the Code of Conduct would hurt talent agency business, and (4) distributed one talent agent’s response to a request to negotiate individually. These allegations, the court said, rather than establish a horizontal agreement among competitors, merely demonstrated, at most, that the agencies participated in trade association meetings where information was exchanged and strategies were advocated. As a result, the court granted the motion to dismiss these per se group boycott claims, although without prejudice.

Other claims. Many of the other claims were also dismissed. The four racketeering claims were dismissed with prejudice because the counterclaims failed to demonstrate that the agencies were bargaining representatives within the meaning of RICO. In addition, no showing was made that prohibiting studios from paying packaging fees furthered the aims of the Labor Management Relations Act. The unions also lacked standing to bring claims for breach of fiduciary duty and constructive fraud on behalf of their members. Counterclaims by those individuals, however, for breach of fiduciary duty were not dismissed because they stated a plausible claim. Those individuals’ claims for fraud, however, failed for lack of pleading specificity. The unions’ claim for violations of the California Unfair Competition Law (UCL) were similarly dismissed for lack of standing. And, once again, the court denied the motion to dismiss the individuals’ counterclaims for violations of the UCL. The counterclaim for declaratory relief also survived, because it was based on the claims that survived. One individual’s breach of contract and promissory estoppel claims were permitted to proceed.

The court, therefore, granted the motion to dismiss eight of the 14 counterclaims. Two others were dismissed to the extent that they were brought by the unions rather than individual members. The motion was denied in all other respects.

This case is No. 2:19-cv-05465-AB-AFM.

Attorneys: Shawn R. Obi (Winston & Strawn LLP) for William Morris Endeavor Entertainment, LLC. Anthony R. Segall (Rothner, Segall & Greenstone) for Writers Guild of America, West, Inc. and Writers Guild of America, East, Inc.

Companies: William Morris Endeavor Entertainment, LLC; Writers Guild of America, West, Inc.; Writers Guild of America, East, Inc.

MainStory: TopStory Antitrust GCNNews CaliforniaNews RICO StateUnfairTradePractices

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