‘JFK’ Suit Tackles Its Own Conspiracy Theory

If former New Orleans Dist. Atty. Jim Garrison enjoyed needling the government with his Kennedy assassination theory, he would have loved the irritation his estate is causing Hollywood.

Its class-action lawsuit essentially accuses the seven major studios and the Motion Picture Assn. of America of conspiring to systematically cheat motion picture participants out of money. The suit challenges the inaptly named “net profits” arrangement so common for authors, actors and other creative talent.

Garrison vs. Warner Bros. stems from the Oliver Stone film “JFK,” which was based on Garrison’s book “On the Trail of the Assassin.” The film grossed more than $150 million worldwide but generated no net profit for Garrison, who received $300,000 in book and consulting fees.

Most studios use an accounting system that assigns arbitrary costs to a film for distribution, advertising and overhead that may have little relationship to actual expenses. Thus a studio can make a huge amount of money on a film that generates no “net profits.”

In February, a U.S. appellate court cleared the way for anyone who has had a contingent compensation contract with the majors since 1988 to join the suit, filed in 1995, opening it to about 10,000 writers, directors, producers and actors.

Attorney Pierce O’Donnell, who represented Art Buchwald in his well-known case against Paramount, contends, perhaps with some exaggeration, that this has “put a nuclear missile to the heads of the studios.”

While Garrison was to have received 5% of any net profits generated by the film, his heirs could receive much more if they prevail in the class action. Any recovery at trial, however, would be distributed among all members of the action.

To be sure, many class-action suits are settled for a fraction of what has been sought, and that could easily happen in this case. While it’s unclear whether the broad class-action challenge will succeed, some individuals are pressing ahead successfully with specific claims.

Last month, director Ron Shelton won a $9.8-million jury verdict stemming from a lawsuit against 20th Century Fox in which he claimed he was entitled to half the net profits from the film “White Men Can’t Jump,” which Shelton wrote, directed and produced. Fox said it will file a motion to have the judgment set aside and will appeal if that fails.

In the class-action suit, Garrison’s lawyers may have a tough time proving a conspiracy.

James Clark, who represents MGM in the case, finds Garrison’s premise absurd. “They want us to believe that this group of fiercely competitive studios somehow got together and agreed on how they were going to conduct business. Given the history of the industry and the way studios compete for talent, it will be very difficult for them to prove that,” he said.

Victor Goldberg, a Columbia Law School professor and economist, sees the class action as “a meritless suit that shows no understanding of why [contingent compensation] clauses have been used. It makes no sense for the studios to conspire on this particular issue in this particular way.”

Loyola Law School professor Lon Sobel, who was co-counsel for Paramount on the Buchwald case, agrees. While Garrison court papers cite substantial similarities among various studios’ contingent compensation agreements, Sobel finds that neither surprising nor incriminating.

“Do you really think that when [attorney] Helene Hahn went from Disney to DreamWorks, she suddenly thought it was time to construct the ideal net-profits language?” asked Sobel. “It’s like pollen on the back of a bee--it has nothing to do with conspiracy.”

Lou Meisinger, Sony’s outside counsel in the Garrison case, said it would require “a tremendous leap of faith and fact to conjure up a conspiracy in a case like this, particularly when talent and their representatives are as responsible as anybody” for contributing to the commonality of terms among studio agreements.

“We’re confident there never was a conspiracy,” said attorney Bert Fields, who represents Paramount in the Garrison case. “Terry Semel did not sit down with Rupert Murdoch and Sherry Lansing and say, ‘Let’s fix the definition of net profits so no one will ever get any [money].’ ”

“Piece of cake,” said Garrison lead counsel Joseph Cotchett of Burlingame, Calif., when asked how he could prove a Hollywood conspiracy.

Cotchett contends that by refusing to negotiate contingent compensation terms, the studios have effectively (and illegally) controlled the marketplace.

“The only thing studios will negotiate is whether you get paid on the 15th or the 20th” of the month, says Thomas Girardi of Los Angeles, Cotchett’s co-counsel.

Michael Adler, a Los Angeles entertainment attorney who represents top talent, disagrees. Adler said he negotiated a studio contract that recently resulted in $1 million in net proceeds.

As most people familiar with Hollywood business deals know, contract terms can be interpreted in very different ways depending on who you are.

The studio position is that “net profits” has nothing to do with real profits; it is a contractual formula designed to give participants a bonus after a film reaches a certain point in the revenue stream. If there is anything that both sides in the Garrison case agree on, it’s that net profits is a misnomer because it mistakenly implies there will be a profit in the accounting sense.

But the Garrison suit, as well as other legal challenges in recent years, may already have forced changes in the way studios operate. A few studios (among them Warner and Universal) have already replaced the enigmatic phrase with tamer terminology: “net proceeds,” “participation proceeds,” “defined participation,” “participations,” “participation start points” and “contingent compensation.”

Mel Sattler, who headed Universal’s worldwide business affairs for 30 years and was an expert witness in Buchwald and other contingent compensation cases, changed Universal’s contract language to “net proceeds” in the early 1980s.

Said Sattler: “You can hang a sign that reads ‘cow’ on a horse but it’s still a horse. If you want to call a bonus a net profit, go ahead, call it anything you want--that doesn’t change what it is.”

Meanwhile, the Garrison suit could be a 10-year irritation for the studios as it wends its way through the legal system.

The studios have amassed a powerful armada of legal talent from Los Angeles’ top entertainment law firms. The Garrison lawyers, while inexperienced in the entertainment business, are top trial attorneys.

Cotchett was among a team of lawyers who got a $3.3-million jury verdict (later reduced to $1.75 million) against Charles Keating Jr. and his associates; he later collected about $260 million in settlements from Keating’s accounting and law firms.

The recent court ruling allows the Garrison lawyers to begin delving into studio business records and questioning industry executives in depositions, which are expected to begin in several weeks. Some say such accountability is what the studios most fear.

“The antiseptic spotlight of public scrutiny on the studios’ accounting practices will shine very brightly in the Garrison case,” said O’Donnell.

Di Mari Ricker, a former Los Angeles entertainment lawyer, is a freelance writer.