The ‘HOME IMPROVEMENT’ Lawsuit: A Messy Feud over a Billion-Dollar Comedy

home_improvement_photo2Judging by the numbers, the Tim Allen’s 1990s sitcom Home Improvement is a highly successful show which has brought in well over a billion dollars and tons of laughter to boot. But from the look of things, the laughter stopped a rather long time ago for the creators of the show, who claim they have been stiffed in the way the pot of gold is being divvied up. Now, they have invited the court to sort out the messy details of the billion-dollar situation between them and the owners of the show, Disney. The Tim Allen comedy ran on the ABC television network from between 1991-1999 and won a lot of awards in its heyday, including the Golden Globes and the Primetime Emmys. As with most successful shows of its kind, Home Improvement has been in syndication in many media markets around the country and abroad since it ended its remarkable run in 1999.

But first, here s the story…..

This past February, the producers (creators-writers) of the show and their various production companies, who claimed that they were profit participants on the show under an agreement, sued ABC’s parent Disney in Los Angeles for syndicating the show at  “well below the fair market value” and for not consulting with them on the business plans for the exploitation of the show. They alleged that Disney’s actions essentially denied them their fair share of the profits arising from the show.

The plaintiffs, Matt Williams, Carmen Finestra, Tam O’Shanter and David McFadzean also complain of lack of adequate accounting from Disney as well as an improper allocation of the distribution expenses and other charges to the show. In particular, the plaintiffs who were also the showrunners of the series during its eight seasons objected to the syndication of the show to CBS television in the New York market “for no monetary consideration.” In their lawsuit, the plaintiffs are seeking damages for breach of contract; breach of implied covenant of good faith and fair dealing; damages for unfair competition; appointment of a receiver as well as an injunction and an order for accounting.

As it turns out, Disney and the Home Improvement folks have been down this path before. In the mid-1990s, another lawsuit over the divvying up of money from the show was settled out of court but not before the dispute led to the creation of new rules about how studios and networks are allowed to make deals with one another when outside profit participants are involved on shows.

This case is no doubt an important one in the movie and TV industries where syndication deals and profit-sharing arrangements between networks/studios and producers and other collaborators are pretty commonplace. The decision in this case could create yet more rules about working arrangements among these entities.

But what are the odds of the plaintiffs winning their claims against Disney? Is the law on their side? Well, let’s see:

For starters, this entire case benefits greatly from the fact that there is actually a written agreement between the parties, which controls their relationship. That takes a lot of sweaty guesswork out of the picture. In particular, the breach of contract claim that exists in this case makes the existence of a written agreement here an even bigger deal for the simple reason that a breach of contract action by one party essentially accuses the other party of not fulfilling its promises under the agreement. Of course, because each situation is controlled by the details of the deal, it is obvious that how clearly the terms of the agreement are written and how much they adequately cover all the bases are always the key worries. Naturally, just like any other plaintiffs in a breach of contract case, the producers of the Home Improvement series must first show that they have performed all of their own obligations under the contract itself. At first blush, it looks like meeting this requirement should be a breeze for them, considering, well, that they produced the show successfully for all eight seasons.

The key piece of the breach of contract fight here is the producers’ claim that Disney failed to consult with them regarding their plans for the exploitation and distribution of the show. Well, since they are entitled to a share of profits from the show, it sure makes sense that they may bargain for this kind of provision in the contract, as they claim. (By the way, the producers claim in their lawsuit that the agreement entitled them to a whopping 75 percent of the net profits from the show, aside from their fees for writing and producing each episode of the show during its eight seasons.) Needless to say, if the producers of the show were not consulted at all by Disney before the distribution deals were made, then it’s an easy case of breach of their agreement. In such a case, the producers would indeed be entitled to the exact ‘injunction’ or order they have requested from the court. The point of the injunction in this case would be to command Disney not to proceed with any further distribution deals and arrangements without first consulting the producers, as provided for in the agreement.

But if they were consulted in any way at all, then it becomes a different ball game altogether. In this situation the quality of the consultation becomes the issue. For starters, by the producers’ own admission, just because they are consulted doesn’t give them the final say on exactly how Disney implements whatever distribution strategy it chooses to adopt or even what particular strategy Disney will choose to adopt. This also means that the right to consultation doesn’t give the producers the final say on exactly who Disney chooses to license the syndication rights to and, for that matter, how much.

Yet, they are entitled to be consulted and to have their input given its due and proper weight. That brings us to their other claim against Disney for breach of the covenant of good faith and fair dealing. This covenant is an ‘implied’ requirement that the courts read into every contract of this nature regardless of whether the parties have actually written the term into their agreement. In a situation where one profit participant, such as Disney in this case, controls the decision about who to deal with and how much money to charge in each situation, this requirement becomes even more important in order to protect the interest of the other profit participant who is not at the steering wheel of their joint enterprise. A big part of this requirement is that the party in charge of the decision must do his best to obtain at least a ‘fair market value’ for the product or service being sold. Of course, it would be great if he can obtain the highest possible value for the deal but strictly speaking, he is not required to do so. Understandably, this leeway is allowed to the deal maker mostly because of the unpredictable waters of business life plus the existence of other business considerations that often surrounds each business deal.

But a ‘fair market value’ is required in any event. In this case, one of the big questions is whether the syndication of the show to CBS for no money at all is an unfair undervaluation of the product, as the producers claim. If the series are syndicated in other markets for millions of dollars (as the producers claim), then Disney needs a good explanation for why it sold the series for no money in this particular market. And since the producers are already claiming that they were not consulted prior to the CBS deal, things likely won’t look good for Disney if they don’t have a good explanation for the deal, one that makes business sense.

As noted above, the producers have also tagged on a request for the appointment of a receiver. In layman’s language, a ‘receiver’ is someone appointed by the court to collect monies or other proceeds of an ongoing business operation. The cry for a receiver is pretty standard fare in situations like this one where a dispute has broken out between two parties both of whom are entitled to the profits from their joint enterprise. And when we have a situation where one of the two parties is the one controlling access to the monies coming in and is also the one allegedly refusing to render full accounting to the other party, the courts are usually more willing to listen attentively to the prayer for the appointment of a receiver; especially if the party seeking a receiver is also the one that is on the outside looking in, like the producers in this case. To be sure, this case seems like a suitable one that requires the services of a receiver in the meantime no matter who wins in the end.

Then there is the producers’ request for an accounting. Well, in a breach of contract situation, one can safely bet that someone asking for a receiver would also be seeking the remedy of accounting. As it happens, the two hands are often played together by the same person in these kinds of situation. In our case here, the producers are claiming that certain information has been withheld from them with respect to some ongoing accounting exercises and that in other cases they have been given no access at all to the books and records of the business, in violation of their rights under the agreement. From the look of things, it is difficult to imagine that the court will not assist them to get some accounting in this situation.

In the end, this lawsuit looks like a great candidate for an out-of-court settlement. Considering all the second guessing about whether Disney’s business deals makes sense and whether ‘fair market value’ has been obtained on the deals and whether expenses have been properly calculated and net profits correctly figured, it looks like matters are in a grey area here and that both sides are locked in a messy fight. The producers still have some heavy lifting to do in this case. Yet, for a party like Disney, it won’t be a good idea to let this thing just drag on and, worse, to have the court poring over its ledgers and other business papers, looking for needles in haystacks. That kind of distraction is hardly good for business, especially with a highly successful show that is still in profitable syndication. Long story short, it would be smarter in this situation for the two sides to divide the big money between themselves than to let the court do that for them with the blunt instrument of a court order.

*****Author’s Note****

The BooK Release Party for “Comedy Under Attack: The Golden Age and The Headwinds” is scheduled for Friday, November 15 at the PIT [Peoples Improv  Theater], 123 East 24th Street, New York City. Showtime is 11 p.m. The party will feature a night of stand-up comedy emceed by comedian Dean Masello of Laugh Strong Comedy, plus a panel discussion/Q&A moderated by book author Carl Unegbu, plus book signings. All are invited. Mark your calendars!

Contact: thepit-nyc.com/steve gabe (908) 723-3491/carl unegbu (646) 337-0746

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