Funnyman Adam Carolla has quite a situation on his hands these days. And he does have some court dates coming up where he’ll be sorting out a few money matters with some old friends. It all comes back to the whole idea that doing business with other folks is never an easy thing and there is no guarantee that things would get any easier just because those other folks happen to be a guy’s close pals. Especially when business starts to boom and it comes time to divvy up the money. But first, here’s the story.
Around February 2009, Carolla’s radio gig the Adam Carolla Show was unexpectedly canceled by CBS. That was when Donny Misraje, a longtime close friend of Carolla’s suggested that the comedian roll his show over to a daily podcast as a way to “retain his avid fan base.”
According to Misraje, he and Carolla agreed to form a partnership business to pursue the new venture together. Under the oral agreement, Carolla was to hold a 60 % interest in the partnership, leaving 30% to Misraje and his wife Kathee, and another 10% to a guy named Sandy Ganz.
Misraeje claimed that by 2011 profits from the business had grown by a lot and that Carolla had begun shutting out all three of the other stakeholders from the operations of the business, including at one point, banning him (the producer) from being on site at the live show; he said that by the end of October 2011, Carolla had fired all three of them altogether and was refusing to honor the partnership agreement. In response, Misraje and his co-plaintiffs filed a lawsuit against Carolla, alleging breach of the partnership agreement plus a demand for accounting; the imposition of a constructive trust for their benefit and protection; and more.
The outcome of this case could provide some clarity for the benefit of the many comedians on the late-night TV shows, radio shows, podcasts and comedy specials, who work under various arrangements, promises and understandings with their buddies, whether as show sidekicks, as producers and as whatever else they’d like on their show.
The starting point in figuring out this case is to determine if there was indeed a partnership agreement between the parties, and if so, whether Carolla’s actions violated the terms of that partnership. If the answer is yes, then the next thing is to figure out what kind of remedy can be awarded in order to set things right.
Under the law, a partnership relationship arises when two or more people carry on business together for profit. And the agreement between any two or more people to form a partnership could either be written down in a document somewhere or it could be made orally as by word of mouth. Regardless of whether the agreement was written or oral, what must exist in every case is that each partner had the ‘intent’ to enter into the partnership with the other partners and that each of them ‘consented’ to become partners with one another. In short, the partners must be on the same page as to whether they want to form a partnership. Business lawyers often refer to this requirement as a ‘meeting of the minds’ between the folks involved. And this requirement is a pretty big deal because in the eyes of the law, each partner is an ‘agent’ of the other partners and his actions could bind the other partners whether they like it or not. Also, the partners are considered ‘co-owners’ of the business, meaning that all the partners have the right to participate in the management of the business and the sharing of its profits.
Therefore, as in every partnership case, the simple question here is whether Carolla intended to and consented to become partners with Misraje and the others. In other words, was there a ‘meeting of the minds’ between Carolla and the plaintiffs to form a partnership? Well, since we do not have a written agreement here, the intention and consent of the parties to become partners will have to be gathered from their actions at the time that their collaboration began, as well as the period before and after. These actions are usually referred to as ‘course of conduct’ and they are deemed to shed light on what the parties had in mind when they were interacting with one another.
Speaking of ‘course of conduct’ between the parties, the courts have over the years come up with certain ways of reading between the lines when attempting to figure out the intentions of folks involved in contract situations. And the process can sometimes be tricky because this surely ain’t a perfect science. Usually, when the evidence presented by both sides is sort of evenly balanced and could go either way, the courts come down in favor of the person who is denying that there is a partnership.
Here’s how it works: In one case that happened in New York, the first guy claimed that he gave a certain amount of money to the other guy in exchange for a 10% partnership stake in a restaurant business. (Both guys had been close pals for over 20 years at the time.) However, the other guy claimed that the money was a ‘loan’ rather than a ‘capital investment’ in the restaurant business. It was shown that the first guy who lived in Washington, DC, visited the restaurant just once or twice during the first year that it opened; that he gave out menus and business cards about the restaurant to other folks; and that he requested a friend of his in the media to feature the restaurant in a prominent magazine. The court concluded that these actions could have been the actions of a guy just trying to help his friend’s business rather than the actions of a person acting as a partner in a business. The court instead gave more weight to all the things (get this!) that he did not do. For instance, that he did not inquire about the leases; the contracts; the insurance; and the debts of the business. Also, he did not raise or discuss with his supposed partner any concerns about the profits or losses of the business; nor did he indicate in any of his loan applications or tax returns filed during that time period that he had acquired a partnership interest in the restaurant.
In the Carolla case, it is interesting that Misraje has taken pains to outline actions and steps that he and the other plaintiffs took to establish the intention and consent of all the parties to the partnership, including Carolla. As consideration for his stake in the business, Misraje (an experienced producer and editor) claims that he was to produce and manage the show. He also claims that he quit his entertainment industry job paying $231,000 annually in order to focus on his work at Carolla’s podcast, which carried no salary at all. During this time, he claimed that he and his family lived off a home equity line of credit on their property. In addition, Misraje said he kicked in $10,000 worth of personal equipment and supplies into the business operations of the podcast plus other sacrifices that he and his wife made. For his part, Carolla was to be the star of the comedy show, while Ganz would contribute his expertise in technology as consideration for his own share of the business. Obviously, if Misraje’s side can sustain these claims in court, they’ll likely have a far better day in court than the restaurant guy above.
Of course, if the court finds that there is no partnership relationship between the parties, then it is game over for the plaintiffs, meaning that Carolla wins. However, if the court finds that there is in fact a partnership situation between them, then the action shifts to the question of ‘remedies,’ where the court decides how to set matters right between the parties. And the courts can be pretty flexible when they are dealing with remedies. For starters, considering that each partner is entitled to participate both in management and profit sharing, for one partner to exclude a fellow partner from the operations of the business or to refuse to share profits with another partner is a violation of the partnership relationship and such an action would be a good cause to dissolve the partnership. In real life, what usually happens when partners can’t agree on the way forward is that the court will ‘order’ the partners not to shut out one another from the business and will appoint a ‘receiver’ to run the affairs of the business until the court proceedings are finished.
However, appointing a receiver may be more appropriate to situations where partners are running a restaurant than where they are running a podcast show. Unlike a restaurant and similar businesses, life in the entertainment world tends to be quite personal in nature and the show itself (including the buzz and the ratings) is all about the ‘star’ of the show. Therefore, as a practical matter, it will be unusual and pretty messy for the court, for instance, to order Carolla to allow Misraje to keep producing his show against his will. Plus, since receivers are folks who take over the business operations in the meantime from the partners, a receiver just won’t work in this situation since Carolla, as the star of the show, will still be front and center of the show. (The show simply cannot go on without him.) Long story short, receivers and injunctions just won’t cut it in our case here.
Of course, that doesn’t mean the end of the case. What will likely happen is that the court will impose a ‘constructive trust’ upon Carolla for the benefit of the other partners. In this case, the thing being held in ‘trust’ by Carolla will be the share of the profits and other assets of the partnership that rightfully belong to Misraje and the other co-owners. (A constructive trust situation arises when someone is deemed to be holding something for the benefit of another person and it usually arises when the courts want to prevent ‘unjust enrichment’ of one person at the expense of another in the interest of justice.) And with constructive trusts comes an obligation to render ‘accounting’ and to distribute the stuff that’s being held in trust.
In the end, this case has the makings of a horse race. And because the burden is on his opponents to prove that it was in fact a partnership arrangement that they had with him, rather than something else, the slight advantage is with Carolla at the early going. Yet, Misraje’s side clearly looks like they’ve come ready to play and, for sure, they’ve put a lot on the table so far. If the case is not ultimately settled, it’s tough to say just how the decision will come down. However it ends, though, it is pretty likely that the result of this case will be of genuine interest to folks in the comedy industry at large.
**Author’s Note: *** As promised, my new book “Comedy Under Attack…”, which covers political correctness and all the big issues in comedy today, is now available on amazon.com and in stores. As a service to comedy, please post your comments about the book on Amazon, Goodreads, Facebook, Twitter and other places, so we can drive this ‘hot debate’ even deeper into the public square……