THE HAPPY DAYS’ ROYALTY LAWSUIT: Grabbing the Gravy After the Party Ends

Happy Days_photo6Sometimes in show business, especially when you’re dealing with a successful TV comedy, such as CBS’ Happy Days, just because the party is over (and as some folks like to say, ‘Elvis has left the building’) doesn’t mean that the gravy from the show’s success may not continue to flow. Yet, the lucky folks who have a right to the gravy still have to be smart enough to find it and then collect it. Because, to be sure, there’s never a shortage of folks in the business world who would keep the gravy from those entitled to get it if those people aren’t paying attention. But first, here’s the story.

In April 2011, five cast members of the hit CBS comedy Happy Days (which ran from 1974 – 1984 before going into syndication) sued both CBS and Paramount Pictures for breach of contract and fraud. The cast members claimed they were owed royalties of more than $10 million, arising from the use of their images in various merchandising operations by CBS and Paramount. The plaintiffs listed various merchandise lines on which their images were allegedly used, including casino slot machines, T-shirts, lunch boxes, board games, greeting cards, glasses and DVD packaging. As it happened, the plaintiff -cast members launched the lawsuit after discovering (sometime in 2010, more than 15 years after the show ended its run on CBS) that the Happy Days image was being used on casino slot machines and other items. The cast members who filed the lawsuit include the actors Anson Williams, Marion Ross, Don Most, Erin Moran and the widow of Tom Bosley. (Incidentally, other cast members like Oscar-winning director Ron Howard and Harry Winkler opted to stay out of the lawsuit.)

Well, a little over a year later, the parties decided to settle their differences out of court rather than fight it out before a judge. Each side claimed satisfaction with the outcome of the settlement. Though the plaintiff cast members got nowhere near the kind of money they’d asked for in the lawsuit, they won something that’s a big deal for them, namely, the right to receive future payments from CBS and Paramount. “We will continue to receive all of the merchandising royalties promised to us in our contracts,” said plaintiffs’ attorney Jon Pfiffer. For their part, CBS and Paramount claimed that they appreciated the way the court had earlier on dismissed the plaintiffs’ “far- reaching claims, which paved the way for an ordinary settlement based on contractual issues.” Fair enough!

Perhaps both parties saw the settlement as something of a wash and for that matter it is always a good thing for each side to see a benefit for itself in any settlement. Yet, it is no big surprise that CBS and Paramount would welcome a chance to settle the case. For starters, their willingness to settle at all says something about the strength of the plaintiffs’ case because, let’s face it, not many folks in their position would settle a multi-million dollar case if they thought they could win it rather easily when push comes to shove in court. As a matter of fact, despite a couple favorable rulings from the court, CBS and Paramount ultimately didn’t succeed in their attempts to dismiss the plaintiffs’ case.

So, anyhow, the case settled. Good for both sides! But the nature of the issues in the case has caused some industry folks who themselves also work with TV studios on comedy shows to wonder how both sides would have fared if the matter had gone to trial on the breach of contract and fraud claims. Obviously, the settlement of this case did not quell their curiosity. So, perhaps it is well to say a couple things about just what could have been in the case. For starters, the claim of a typical plaintiff in a breach of contract case is that though the said plaintiff has fulfilled its part of the deal, the other side, by contrast, has not fulfilled its part of the agreement that they both entered together. Naturally, the terms of the agreement are everything in any contract case, especially if the parties are so fortunate as to have a written contract in existence between them. As one might expect, the clearer the terms of the agreement are, the greater will be the chances of the parties being able to resolve matters in an “ordinary settlement based on the contractual issues,” to borrow the post-settlement language of CBS. All that anybody has to do in those situations is to look at the facts on the ground and simply check those facts against what the clear terms of the agreement said should be done whenever those facts exist. Simple as that!

Speaking of contracts with studios for TV comedies like Happy Days, the usual practice is for the talents (actors) to secure for themselves a right to share in any merchandising revenues that result from their show, usually through the payment of royalties to them. Often times, we’re talking about the use of their images or names on merchandise as well as any other use or appropriation of their identity in the stream of commerce. In our case here, it is noteworthy that the plaintiff cast members of Happy Days claimed in their lawsuit that, under their written agreement, they were entitled to between 2.5 percent and 5 percent of net revenues from any merchandise out there in the marketplace that bears their images.

That brings us to the fraud claim in this case. In layman terms, fraud means deceit, as in being deceived by somebody else. For example, if Paul enters an agreement with Wu to give Wu some money if certain things or conditions come to pass and then Paul willfully fails to tell Wu that those specified things or conditions have indeed occurred and thereby denies Wu the right to receive the money promised, that would be a case of fraud. To be sure, a case of fraud could happen in a contract situation, either because one party to a contract totally fails to disclose something to the other party to the contract or because he willfully chooses to disclose incorrect or wrong information to that other person. It is important to mention here that in a contract situation there is usually an implied obligation to act in ‘good faith’ and ‘deal fairly’ and therefore to disclose what is known as “material” information to the other party to the deal. In a situation where the second party (like Wu in our example above) is entitled to money under certain circumstances, letting that person know that those circumstances have indeed occurred is the kind of “material” information that the first party (like Paul in our example above) would be required to disclose to the other party. This kind of implied obligation to act in ‘good faith’ and ‘deal fairly’ is usually imposed upon the party who has control of the information, such as CBS and Paramount in our case here or Paul in the example given above.

Anyhow, as a practical matter, anytime that a breach of contract action is accompanied by a fraud claim, what usually happens is that where the terms of the agreement are clear and also if the facts and circumstances provided for (or anticipated) in the agreement are shown to have occurred, then the court will order the ‘stronger’ party to render an accounting to the other party. The ‘stronger’ party in these situations is usually the party that is in a ‘position to know’ the facts in question. In our case here, we’re talking about matters like the exact amount of revenues that are coming into the till from the use of images of the Happy Days cast members on casino slot machines, T-shirts, glasses and other merchandise. Needless to say, it is important to ascertain these figures in order to determine just how much monies are due to the plaintiffs in the form of royalties. Also, in our case here, CBS and Paramount would obviously be considered the stronger party when it comes to the kinds of information that is required to be disclosed to the other party.

As it happens, given the stance they adopted at the outset of the case, it is clear that both parties seemed to ‘get it’ when it came to their respective positions in the litigation. The plaintiffs’ side claimed that because CBS and Paramount had a ‘Don’t Ask Don’t Pay’ policy with respect to the royalty payments and had barely paid them anything in more than 10 years, their lawsuit was essentially a reminder to CBS and Paramount about their obligation to pony up. For its part, CBS acknowledged that the monies were indeed owed and that they were working to resolve the matter.

Considering all the above, it is obvious that if the parties here would have pushed matters to a full trial on the merits, the court likely would have ordered CBS and Paramount to render an accounting to the Happy Days cast members regarding all the monies rolling in from the use of their image on all kinds of merchandise. Looking at it objectively, it seems rather smart that the two sides opted to sort out their money matters by themselves instead of allowing the court to do so for them by way of a court order. With a court order, both sides have no say at all over what the court will do and even more troubling is that they may wind up not liking whatever terms the court will impose on them.

In the end, this particular breach of contract case ended well for everyone, especially the cast members of Happy Days who actually had their money on the line. And one might add that the case was of a rather predictable variety and ended both when it ought to end and how it ought to end. Yet the simple lesson here for comedians and other entertainers alike is also a lesson that is not always heeded. First, it is important to draw up a good agreement with clear and easy-to-understand terms. But then it is not enough to simply acquire a right to receive benefits under an agreement. It is also important to watch out for occasions when that right might materialize so that the right can be enforced. (As noted above, the plaintiffs- cast members claimed that they first discovered the use of their image on the casino slot machines in 2010, some 15-plus years after their show ended.) Again, this suggests that just because the other side may be required by law to disclose beneficial information to their counterparts does not mean that they will in fact do so. For all kinds of reasons, including sometimes a desire to simply hang on to the money, they may simply choose not to do so. Long story short, in the brave world of business, sometimes when ‘you snooze you lose.’

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