TABLE OF CONTENTS

Table of Authorities.............................................................................................................. -iv-

 

Table of Exhibits..................................................................................................................... -v-

 

I.          Introduction.................................................................................................................... 1

 

II.         The Release Improperly Includes a Waiver of Claims Against                       

WGA That Is Much Broader than the Claims Litigated in this Case...................... 2

 

A.        California Class Action Law Looks Askance at Efforts by

Settling Parties to Expand a Release to Cover Issues That

Fall Outside the Scope of the Complaint........................................................ 3

 

B.        The Revised Settlement Makes No Change to the Scope

of the Release Insofar as Member Rights of Ratification

Are Concerned.................................................................................................... 6

 

C.        The Release Covers Potential Claims for Violation of

International and Foreign Law That Were Not Litigated

in this Case.......................................................................................................... 6

 

D.        The Release Ostensibly Covers Potential Claims For

Erroneously Paying The Wrong Individual.................................................... 9

 

E.         The Release Should Be Further Clarified to Exclude

Industry Groups............................................................................................... 10

 

III.       The Revised Settlement Agreement Attempts to Orchestrate an

End-Run Around California Unclaimed Property Law.......................................... 10

 

IV.       While Progress Has Been Made Concerning the Accountant’s

Function, the Accountant Should Be Charged with Specific Instructions.......... 12

 

A.        The Big Four Accountant Should Investigate What Happened

to Any Missing Money.................................................................................... 13

 

B.        The Big Four Accountant Should Report on the Particulars

of Which Writers Have Been Paid and Which Writers Are

Still Owed Money, and Include an Investigation into

Teri Mial’s Testimony That Wga Destroyed Documents.......................... 15

 

V.        Neville Johnson’s Accusations Against Eric Hughes............................................ 16

 

VI.       The Parties Failed to Address Other Areas of Concern Raised

by the Court in Response to the Objections............................................................ 16

 

A.        Clarification of Judicial Oversight................................................................ 17

 

B.        Clarification of the Manner In Which the Collections

for Non-covered Works Will Be Handled................................................... 18

 

C.        Clarification Is Needed Regarding Assurances That

Writers Cannot Be Located Before Cy Pres Money Is Distributed.......... 18

 

D.        The Parties Failed to Respond to the Court’s Concerns about Notice of Foreign Based Writers............................................................................................................... 18

 

VII.      Remaining Objections................................................................................................. 18

 

VIII.    Conclusion.................................................................................................................... 19

 

 

 

                                                     TABLE OF AUTHORITIES

California Cases

Martinez v. Autozone, Inc.(2007) 2007 WL 1395477 (2d Dist., Div. 7)........................... 5

 

 

McGuigan v. City of San Diego(2008) 2008 WL 4358551 (4^th Dist.)............................... 5

 

 

Trotsky v. Los Angeles Federal Savings & Loan(1975) 48 Cal.App.3d 134................. 3‑6

 

 

 

 

Federal Cases

 

Adderly v. NFL Players Ass’n(2009) 2009 WL 4250786 (N.D. Cal.)................................ 5

 

 

Zoran Corp. Derivative Lit.(N.D. Cal. 2008) 2008 WL 941897......................................... 5

 

 

 

 

                                                         TABLE OF EXHIBITS

Exh.	Date	Description
S	March 9, 2010	Reporter’s Transcript of Proceedings (Richert v. WGA)
T	November 11, 1992	European Economic Community Council Directive 92/100/EEC (from website of World Intellectual Property Organization [“WIPO”]).
U	December 12, 1994	Law No. 43, Spanish incorporation of 92/100/EEC
V	March 15, 1996	Italian Legislative Decree No. 204 Concerning Right of Lease and Other Copyright-Related Rights
W	April 11, 2010	Copyright & IPR - Manual. European Commission, eYouGuide (source: http://ec.europa.eu/information_ society/eyouguide/fiches/glossary_ipr/index_en.htm )
X	March 31, 2003	Section 75 from WGA’s LM-2 Labor Organization Annual Report obtained from U.S. Department of Labor, for fiscal year ending March 31, 2002
Y	October 12, 2009	Letter from WGA Executive Director David Young re preliminary approval of settlement agreement
Z	2000-2006	Selected pages from WGA’s LM-2 Labor Organization Annual Reports obtained from U.S. Department of Labor, for fiscal years ending March 31, 2000 through March 31, 2006
AA	March 31, 2003	WGA Statement of Financial Position, fiscal year ending March 31, 2003, published in WGA publication
BB	March 31, 2004	Selected pages from WGA Statement of Financial Condition for fiscal year ending March 31, 2004
CC	June 17, 2009	Selected pages from Constitution and Bylaws of The Writers Guild of America, West, Inc.
DD	Amended through September 1979	Berne Convention text

 

 

I.              INTRODUCTION

As a result of the Objections, and continued discussions, the parties have apparently brokered an improved settlement agreement – but there are still many gaping holes which the Court must address before granting final approval.  For one thing, the release provision is still too broad.  It releases WGA from any and all claims “based upon and/or arising out of the facts and circumstances alleged in the Action,” thereby sweeping up potential claims against the Guild that were neither alleged in the Complaint nor litigated by the parties, including claims that WGA wrongfully failed to submit the Foreign Levy Agreements to membership ratification, and that WGA wrongfully authorized 50% of the Foreign Levy money to go to the producers.

The scope of release, however, is not the only remaining issue.  Kicking and screaming, the parties have made a baby step - but an inadequate one - in agreeing that Foreign Levy money owing to non-covered writers who can be identified but not located may escheat to the State of California. But the proposed settlement agreement, in an obvious concession to WGA, still provides that money owing to covered writers who allegedly can be identified but not located will remain with WGA to be used to defray WGA operating expenses.  There is simply no reason in law or logic to distinguish between covered and non-covered writers in this regard, and all unpaid monies should be subject to escheat to the extent that the WGA can identify but not locate individual payees. 

The third defect is that, essentially ignoring the Court’s March 9 request, the parties fail to provide any type of assurance regarding a meaningful accounting, and leave the original proposed settlement - which required a Big Four accounting firm to provide nothing more than a balance sheet - without change.  Objectors can show that over $5 million in undistributed foreign levies has seemingly disappeared from WGA’s accounts, which underscores the need for a detailed and comprehensive audit.  As a prerequisite, the accounting firm should be given specific and detailed instructions about what information it should look for, what sort of investigation it should conduct, and what specific questions it should answer.

Objectors had hoped to work out a practical solution so that the parties could end this litigation, but with so many remaining infirmities, Objectors cannot consent to the revised proposed settlement, and urge the Court to direct the parties to return to the negotiation table and make further efforts at concluding a fair and legally compliant settlement.

In the meantime, Objectors maintain their fundamental objection that it is imprudent to approve this proposed settlement without a shred of evidence to support its ostensible fairness, and without meaningful benefit - including a payment guarantee - to class members.

Finally, in order to establish a complete record, Objectors respond to the unwarranted attack against Eric Hughes made by Neville Johnson in his Declaration supporting the earlier Motion for Approval of Final Settlement.  We believe this attack was unnecessary, and made in an effort to trivialize the objections and discredit the Objectors.  Whatever the reasons, Mr. Johnson’s accusations are in many respects untrue, and we provide a detailed response to them in the accompanying Supplemental Declaration of Eric Hughes (“Supp. Hughes Decl.”).^[1]

 

II.           THE RELEASE IMPROPERLY INCLUDES A WAIVER OF CLAIMS AGAINST WGA THAT IS MUCH BROADER THAN THE CLAIMS LITIGATED IN THIS CASE.

 

Objectors are pleased to see that the revised Settlement Agreement was expressly modified so as to exclude employers (the production companies) and the foreign collecting societies from the scope of the Release.  (Revised Settlement, ¶ 11; Joint Report, § 6.)  Constriction of the Release in this regard makes substantial progress in, among other things, ensuring that writers retain the right to claims against the production companies and foreign collecting societies that the 50% of Foreign Levy royalties which WGA has assigned to the production companies actually belongs to them.

Unfortunately, despite Objectors’ requests, plaintiffs continue to accede to WGA’s demand that the release protect the Guild from the same claims that are preserved as to the production companies and collecting societies: that it was wrong of the Guild to assign 50% of Foreign Levy royalties to the producers.^[2]  The Court should limit the scope of WGA’s release to the conversion claim asserted in this case, which dealt only with the 50% of Foreign Levy royalties allegedly collected by WGA. The Court should not let WGA off the hook for other claims that fall far outside the scope of this case, including claims that WGA acted improperly by agreeing to let the production companies take the other 50% of the writers share of Foreign Levies.

A.           California Class Action Law Looks Askance at Efforts by Settling Parties to Expand a Release to Cover Issues That Fall Outside The Scope of the Complaint.

 

It is well-settled that class action settlements should not be approved when the parties seek to use the release to absolve a defendant from potential liability for claims that fall outside the scope of the complaint and/or which were not litigated in the case.  Trotsky v. Los Angeles Federal Savings & Loan (1975) 48 Cal.App.3d 134. 

In Trotsky, plaintiff Troskys’ second amended complaint against Los Angeles Federal Savings (“LAFS”) alleged that two clauses in a form deed of trust (clauses 9 and 12) were invalid. In the meantime, a Robert Barwig initiated his own class action against LAFS regarding the validity of clause 10 of the same form deed of trust.  The Trotskys then settled their case with LAFS, which included minor relief as to clause 10 issues, and a release that covered claims regarding clause 10 as well as clauses 9 and 12.  Neither LAFS nor the Trotskys told the superior court about the Barwig case, but Mr. Barwig, being a class member of the Trotsky case, received notice of the proposed settlement and filed objections, claiming that the release was overbroad and could, if approved, jeopardize his own class action.  The superior court approved the settlement anyway, opining that whether the settlement would bar or estop the Barwig lawsuit was a matter to be addressed in the Barwig case.

The Court of Appeal reversed, holding the release was too broad.  The Court held that, because the Trotsky complaint did not address or purport to address the clause 10 issue, the Trotskys were not adequate representatives with respect to clause 10 claimants such that they had the right to effect a release of clause 10 claims.  “[The Trotskys] did not define the class to include clause 10 claimants, and did not purport to represent such class.  In the absence of further amendments to the pleadings, the Trotskys could not settle the claims of a class of plaintiffs they did not represent.”  Id. at 145 (emphasis added).

The Court emphasized that because the Trostkys did not litigate clause 10 issues, they could not be said to have devoted sufficient energy to those claims so as to consent to a release of them.  Id. at 146-47.  In addition, the Court rejected the argument that the release should have been approved because the Trotskys could easily have amended the complaint to include clause 10 claims.  The Court held: “The fact remains, however, that here the complaint was not amended to encompass the terms of the settlement.  Without amendment of the complaint the purported settlement of clause 10 claims was outside the scope of the action and was not valid.”  Id. at 148.

Critically, the Court of Appeal admonished the Trotskys and LAFS for concealing from the Court the full import of their settlement.  “[T]he trial court has the right to expect the settling parties to disclose the effect of such [release] terms at the time the proposed settlement is brought to the attention of the court . . . There was no such candor and openness in the instant case.”  Id. at 148-49.

Although there has not been much California case law on this subject in California following Trotsky, it has not been criticized or overruled in any subsequent decision.  There are, notably, examples in unreported cases of parties crafting their settlement agreements so as to conform with the principles announced in Trotsky.  Thus, in Martinez v. Autozone, Inc. (2007) 2007 WL 1395477 (2d Dist., Div. 7), the Court of Appeal affirmed approval of a settlement that contained the express caveat that “Claims not released are those not pled in the complaint,” and ordered the trial court to include that caveat in its final order.  Id., *2, 11.  In McGuigan v. City of San Diego (2008) 2008 WL 4358551 (4^th Dist.), a release was approved because it was expressly held to be “coextensive with the causes of action arising from the facts alleged by Plaintiff.”  Id. at *9.

The same pattern can be found in federal cases.  In Adderly v. NFL Players Ass’n (2009) 2009 WL 4250786 (N.D. Cal.), the Court initially disapproved a preliminary settlement, and then approved it only after the release was “narrowed significantly,” including “that the release was limited to certified or asserted claims.” Id. at *2 (emphasis in original).  In Zoran Corp. Derivative Lit. (N.D. Cal. 2008) 2008 WL 941897, Judge William Alsup denied a proposed class action settlement, inter alia, because it included an improperly broad release of claims “that could have been alleged” in the complaint.  Id. at *9.

As we show in subsections B and C below, the proposed settlement - even as revised - will deprive class members of important claims that fall outside the scope of the Richert Complaint: (1) claims that WGA violated their right to ratify the Foreign Levy Agreements (because they are collective bargaining agreements); and (2) claims that WGA wrongfully gave away 50% of their Foreign Levy royalties to production companies.

B.            The Revised Settlement Makes No Change to the Scope of the Release Insofar as Member Rights of Ratification Are Concerned.

The Avalos and Eisenson Objections complained that the Release will prohibit class members from challenging their union’s failure to submit the Foreign Levy Agreements (which WGA acknowledges to be collective bargaining agreements) to member ratification.  (See, Avalos Objections, § V.C.5, pp. 25-26.)^[3] 

Under Trotsky, the release cannot extend to claims regarding the right to member ratification, which right arises under federal law.  Obviously, not one of the named plaintiffs is a union member.  Although WGA claims that Plaintiff Richert is a member in arrears (meaning that he has no right to vote in union elections [WGA Const. & Bylaws, Art. IV.C, attached as Exh. CC, p. 7;]) more importantly, Richert himself denies that he is a union member, and he does not purport to represent the interests of members in this case.  Because the right to vote to ratify a collective bargaining agreement is unique to union members, the Release cannot extend to claims about which the named plaintiffs do not even purport to be representatives.

C.            The Release Covers Potential Claims for Violation of International and Foreign Law That Were Not Litigated in this Case.

 

          Trotsky also bars the settlement agreement here insofar as it would give WGA broad absolution for claims that it wrongfully agreed that 50% of the Foreign Levies of covered and non-covered writers could be paid by foreign collecting societies to production companies.

In order to explain this issue to the Court, we will digress, albeit briefly, and discuss the legal structure under which Foreign Levies are assessed and paid.

As the Court is already aware, various European and other countries assess levies for the rental and reproduction (copying) of audio visual works (“AV works). 

With respect to levies on AV rentals in the European Economic Community, for example, Council Directive 92/100/EEC, which was promulgated in 1992 and became effective in 1994, requires member states to adopt national laws protecting Authors in the case of the rental of copyrighted works by ensuring that, even where a rental right was transferred by an Author to a copyright holder, the Author maintained an “unwaivable right to equitable remuneration.” (Emphasis added.)  Under the Directive, the right to obtain this equitable remuneration could be entrusted to collecting societies.  (The 92/100/EEC is Exh. T.)

Consequently, EEC member countries enacted public laws providing for levies on AV rentals to ensure equitable remuneration for Authors.  (Examples of these types of statutes from Spain and Italy are at Exhs. U and V, respectively.)  As WGA acknowledges, some Latin American countries have also adopted similar laws providing for the levying of AV rentals in order to assure equitable remuneration for Authors. (Exh. X, indicating Foreign Levy money received by WGA from Mexico and Argentina.)

In addition to rental levies, many European countries and some Latin American countries have enacted public laws imposing levies on reproduction (copying), which include assessments or taxes on the purchase of blank DVDs.  In the European Community, for example, a special levy (or tax) is charged on purchases of recordable media such as blank DVDs, and the funds so accumulated are distributed by authorized collecting societies.  (See, e.g., Copyright and IPR - Manual of European Commission (http:// ec.europa.eu/information_society/eyouguide/fiches/glossary_ipr/index_en.htm).

The rights of U.S. authors to their share of these levies is enshrined in the Berne Convention for the Protection of Literary and Artistic Works, to which the United States is a signatory. (The Berne Convention is found at Exh. DD.)  Article 5 of the Berne Convention provides for “national treatment rights,” which ensure that Authors whose works are exploited in countries other than the nation of origin shall enjoy the same rights as authors of the place where protection is claimed. To put it simply, a U.S. writer is entitled to the same protection as a French writer when the U.S. writer’s work is rented or reproduced in France.^[4]  Objectors contend, therefore, that if French writers are entitled to 100% of the writers portion of the Authors share for works rented of copied in France, U.S writers are entitled to the same protection when their creative works are reproduced or rented in France; and efforts by WGA to cause foreign collecting societies to pay 50% of the Authors share to production companies is unlawful.^[5]

While Objectors contend that the Foreign Levy and Collecting Society Agreements are unlawful, at the very least they raise complex questions which were not litigated in this case.  By revising the Release Agreement, absent class members may now assert their claims against the production companies and Foreign Collecting Societies. They should also be permitted to assert these claims against WGA, because the complaint did not purport to address this “additional 50%” issue, and the class representatives have never expressed any interest or capability in doing so. Trotsky, 48 Cal. App.3d at 146-47.  The release should be expressly scaled down to make explicit that the release does not absolve WGA for these claims that were never raised nor litigated in this case.

D.                The Release Ostensibly Covers Potential Claims For Erroneously Paying The Wrong Individual.

 

As Objectors note in their original papers, there are many different stakeholders regarding foreign levies.  There will be occasions when a levy payment is made to a person or persons on a given work – but the WGA has not necessarily paid everyone who is entitled to levy participation.  For example, the WGA has paid the individual who wrote the screenplay but not the person with “Story By” credit – or the WGA may not have paid these individuals equal amounts.  When Peter is paid money owed to Paul, Paul should have a valid claim against the WGA for this unpaid money; yet, Paul would be subject to the broad release.  In our informal discussions, the WGA did not appear to contend that the release would bar claims by someone whose foreign levy money was given to someone else – but the actual release language would ostensibly cover this type of claim.

E.                 The Release Should Be Further Clarified to Exclude Industry Groups.

            The revised proposed Agreement cures many of the ambiguities about whether producers and/or production companies are intended beneficiaries of the release with additional language in Paragraph 11.   Given, however, the broad definition of “Releasees” the specific exceptions listed in the new sentence still leaves a potential gap of unintended Releasees who may or may not be involved in the foreign levy scheme.  This includes industry-wide representative organizations such as the Motion Picture Association of America, the Alliance of Motion Picture and Television Producers, Fintage House and Compact, all of which play some role in the collection of Foreign Levies on behalf of producers but who are themselves neither producers nor entities which employ writers.

 

III.             THE REVISED SETTLEMENT AGREEMENT ATTEMPTS TO ORCHESTRATE AN END-RUN AROUND CALIFORNIA UNCLAIMED PROPERTY LAW.

 

The parties’ Joint Status Report fashions two completely different schemes for handling undistributed foreign levy monies: undistributed money for non-covered writers would escheat to the State of California, but undistributed money attributable to the work of covered writers would remain with the Guild; presumably in its Undeliverable Account from which it could draw to defray regular operating expenses.  The former represents both the legal and prudent way of handling foreign levies; the latter seems to be crafted out of whole cloth.

Under the original settlement, the WGA was going to retain all undistributed foreign levy funds in a segregated account, using the interest to fund various administrative expenses.  Objectors took issue with this, showing that these monies were subject to California’s unclaimed property law.  The Court instructed the parties to revise the agreement, turning money over to the State when identities were known, but allowing a cy pres distribution when the WGA could not determine any payees.

The revised agreement appears to construct a hybrid system where the WGA would retain undistributed monies where the underlying work was governed by a WGA collective bargaining agreement, but would turn money over to the State only where the underlying work was not covered by a WGA agreement.  Why?

As Objectors originally noted, Screen Actors Guild v. Cory (1979) 91 Cal. App.3d 111(undistributed residuals must escheat to the State of California as unclaimed property), controls this action.  Subsequent to Cory, the entertainment guilds were able to lobby for - and obtain - a specific exemption for residuals generated pursuant to a collective bargaining agreement.  See C.C.P. §§ 1501(i) and (j).

Foreign levies are substantially different from residuals.  Whereas residuals are creatures of private contract, foreign levies are created by foreign law.  Indeed, the Foreign Levy Agreements stipulate that this money is not the product of any collective bargaining agreement.  (Exhs. A,¶12; B,¶12, C,¶12.)^[6]  Foreign Levies are not subject to union dues, and thus, under WGA’s own Constitution and Bylaws, they are not considered “gross income derived from employment.”  (WGA Const. & Bylaws, Art. VIII.A.2.b [found at Exh. CC, p. 9].)  Foreign levy money is paid on a 1099 basis without withholding.  That both union and non-union writers alike enjoy the same entitlement to Foreign Levy funds makes this case readily distinguishable from a residual which is paid only because a collective bargaining agreement created the obligation.

Quite simply, there is no reason in law or logic to put Foreign Levies into a residual-specific statutory exemption to California’s general unclaimed property law.

At bottom, given the ambiguity between the Joint Report and the Revised Settlement, it is not clear what the parties’ intent is regarding these undistributed monies.  Objectors maintain their objections to the extent that the parties intend to treat foreign levy obligations arising from covered works as being somehow exempt from California’s unclaimed property law.

 

IV.             WHILE PROGRESS HAS BEEN MADE CONCERNING THE ACCOUNTANT’S FUNCTION, THE ACCOUNTANT SHOULD BE CHARGED WITH SPECIFIC INSTRUCTIONS.

 

At the March 9, 2010 hearing, the Court stated that it wanted to see a:

“Clarification of the scope of the accounting review and the ability of that review to identify undistributed funds and those to whom the undistributed funds may be payable.” 

(Transcript, March 9, 2010 hearing, p. 6:25-28 [Exh. S.)^[7]

 

Following up on the Court’s request, counsel for Objectors send plaintiffs’ counsel an email making two specific recommendations for beefing up the Big Four accounting report which would be required under Paragraph 3 of the proposed Settlement.  First, we asked that the Big Four accountant report on what actually happened to the money that was not actually distributed to writers.  (See Appendix.) Second, we asked that the Big Four accountant investigate whether WGA destroyed records of Foreign Levy documents, and if so, what the consequences of such record destruction would be on the ability of WGA to ascertain who at this time is owed Foreign Levy royalties.  (Id.)  Although Plaintiffs’ counsel told us they would get back to us about this, they never did.  We urge the Court not to approve any settlement that does not contain specific “marching orders” to the Big Four accountant as are described below:

A.                The Big Four Accountant Should Investigate What Happened to Any Missing Money.

Paragraph 3 of the Settlement, which the parties left unchanged notwithstanding the Court’s above-quoted request, requires virtually nothing of the Big Four accounting firm; simply a summation of total amounts of money received, distributed and held.  This, of course, does nothing to advance the central purpose of a settlement, which it to ensure that writers who have not been paid will get paid, and that class members learn whether WGA converted any of their money.

It is not just idle speculation that WGA may have absconded with Foreign Levies and used that money for its own operating purposes; rather, it is precisely this claim that undergirds plaintiffs’ conversion cause of action.

At the March 9, 2010 hearing, WGA counsel Tony Segall, responding to Objector Counsel Winikow’s observations that a settlement agreement needed to contain provisions for restitution of converted money, said:

“There's one thing I can't let sit in the air that Mr. Winikow said.  And we make it very clear that the Writers Guild has never taken any money into its general treasury fees fund. The money that hasn't been distributed to actual writers is still in a trust account.”  (Exh. S, pp. 21:17 - 22:4.)

 

Like with much else that has been presented to the Court by the parties, WGA offered no evidence to substantiate this defense. And as we noted with disappointment in our original Objections, plaintiffs themselves seem not to have furnished the Court with any evidence on which to hang its hat.

Objectors, however, have discovered important evidence indicating that WGA has converted Foreign Levy money into general assets, and this evidence constitutes compelling reason why the Big Four accountant should be charged with conducting a full investigation into this matter.

Contrary to Mr. Segall’s statements, WGA’s own LM-2 report to the U.S. Department of Labor states that the Guild has transferred Foreign Levies held in excess of seven years to an account labeled “undeliverable funds,” and “undeliverable funds” are defined as money that is available to WGA to “defray the cost of Guild operations.”^[8]  If this is not moving money out of the trust fund, nothing is.

But there is more - which appears unfortunately to be at the expense of writers.  WGA’s LM-2 filings with the U.S. Department of Labor seem to indicate that WGA did in fact transfer Undeliverable Funds into its general assets to defray general operating expenses, to the tune of millions of dollars.  The 2005 LM-2 (covering the period ending March 31, 2005) shows that WGA had Undeliverable Funds of $6,119,976.  (Exh. Z, p. 26.)^[9]  The 2006 LM-2 report (covering the period ending March 31, 2006) shows only $532,045 in the Undeliverable Funds account (Exh. Z, p. 29), a difference of $5,587,931.

Where did this 5½ million dollars go?  According to the 2006 LM-2 Report, the Guild paid $93,858.00 to “Undeliverable Payees (Payments to Previously Unlocatable Recipients)” in the 2006 fiscal year.  (Exh. Z, p. 31.)  So the remaining approximately $5.4M in Undeliverable Funds seems to have been transferred to WGA’s regular operating assets.

There is further evidence that WGA transferred Foreign Levy money to its general operating account.  WGA’s “Financial Position” published for members in July 2003, shows $2,925,104 of “Undeliverable Funds” to be “Due to Guild.”  The number is in parentheses (i.e., “($2,925,104)"), suggesting that the money had actually already been paid to the Guild.  (Exh. AA.)

There may, perhaps, be an innocent explanation for this apparent conversion of millions of dollars of Foreign Levies into WGA assets. This is precisely the kind of question the Big Four auditor should be directed to investigate. Accordingly, the Court should reject the proposed revised Settlement Agreement, and instruct the parties to further revise the settlement so as to instruct the auditor to look into this matter.

In addition, as the Court suggested on March 9, 2010, the accountant should be asked to examine and report on the actual amount of money expended by WGA in Foreign Levy administration, in order to ascertain whether it really needs 5% (and up to 10%) of the Foreign Levy money.

B.                 The Big Four Accountant Should Report on the Particulars of Which Writers Have Been Paid and Which Writers Are Still Owed Money, and Include An Investigation into Teri Mial’s Testimony that WGA Destroyed Documents.

Particularized accounting directions should also include an investigation into the destruction of records revealed during the Teri Mial deposition that was taken in this case.

In their effort to discredit Eric Hughes, WGA called his Objections incoherent and unsubstantiated.  This accusation is a transparent attempt to distract the Court from perhaps the most serious piece of evidence revealing WGA wrongdoing.  Mr. Hughes explained at pp. 1-2 of his Objections that a former WGA employee who was deposed in this case, Teri Mial, testified that she was instructed to shred “batch sheets” listing checks.  (A portion of Ms. Mial’s testimony was attached to Mr. Hughes Objections as Exh. 4.)  We believe these were records showing Foreign Levy money that should have been – but was not– paid to deserving writers.

The Accountant should be directed to investigate this issue, interview Ms. Mial if deemed appropriate by the Accountant, and report to the Court and the class on the subject of these destroyed records.

In addition, with respect to identified writers whom WGA claims it cannot locate, the Big Four accountant should be required to report on (i) the identities of these individuals (ii) how much they are owed, and (iii) what efforts have been made –however unsuccessfully – to locate them.

Similarly, the Big Four accountant should be required to (i) identify each title for which WGA asserts it cannot identify the responsible writers, (ii) how much money is involved, and (iii) what efforts were made – however unsuccessfully - to identify the writers for those titles.

 

V.                NEVILLE JOHNSON’S ACCUSATIONS AGAINST ERIC HUGHES.

In his Declaration filed in support of the Motion for Final Approval, Neville Johnson made certain unnecessary and inaccurate accusations against Eric Hughes.  We furnish the Court with a detailed rebuttal to those accusations, which can be found in Paragraphs 3-8 of Mr. Hughes’ Supplemental Declaration filed concurrently herewith.  This Supplemental Declaration shows that Mr. Hughes was fully cooperative with Messrs. Johnson and Kiesel, that he furnished them with detailed and particularized information as well as documentation concerning this case, and that he did not seek to interfere with a settlement - although he did have (and still has) strong opinions concerning what a fair settlement would need to include.  We refer the Court to Mr. Hughes’ Supplemental Declaration for details concerning this.

 

VI.             THE PARTIES FAILED TO ADDRESS OTHER AREAS OF CONCERN RAISED BY THE COURT IN RESPONSE TO THE OBJECTIONS.

At the most recent hearing, the Court addressed several specific objections raised by Messrs. Hughes, Eisenson and Avalos, and requested that the parties clarify a number of lingering concerns.  The parties addressed some, but not all, of the Court’s concerns.

A.                Clarification of Judicial Oversight.

The Court indicated that should it approve the settlement, it would undertake an “active role” in monitoring the accounting and review process.  The settlement agreement, however, still purports to rely upon mandatory ADR as a precursor to judicial oversight.  Revised Agreement, ¶¶ 5d and 16.  Objectors agree that first-step mediation is a good idea, but suggest that the settlement specify who will pay for this mandatory mediation, as costs should not be a barrier to having absent class members raise legitimate issues of concerns.  Also, the settlement should clarify that Objectors as well as plaintiffs may raise issues through the mediation process.

Moreover, the settlement agreement fails to specify the mechanics of judicial oversight, i.e., whether there is an annual report, quarterly reports, etc. Paragraph 8 refers to an annual review for the administrative fee, but the agreement does not otherwise address any other issues or concerns raised by the Court.  We suggest that any final settlement require, at least for an initial period of, say, three (3) years, that WGA report on amounts received, amounts paid, the identify of writers who allegedly cannot be located, and any AV works for whom writers allegedly cannot be identified.

As a related task, we suggest that the Big Four accountant also investigate other sources of information concerning the identity of unpaid writers and AV projects without identifying data.  For example, because the foreign collecting societies (at least those in Europe) are subject to regulatory oversight, they maintain records of money paid to WGA and of the identify of writers and/or AV products with respect to whom such money is payable.  To the extent that WGA asserts that it lacks pertinent information, the Big Four accountant should be authorized to investigate whether alternative sources for that missing information are available.

B.                 Clarification of the Manner in Which the Collections For Non-Covered Works Will Be Handled.

 

The parties do not address the Court’s concern regarding the collections for non-covered work.                           

C.                 Clarification Is Needed Regarding Assurances That Writers Cannot Be Located Before Cy Pres Money Is Distributed.

 

A final settlement is likely to include approval of a cy pres distribution for money that is received for AV works whose writers allegedly cannot be identified.  We believe it is most unlikely that any such situation should ever arise.  But in any event, any final settlement should ensure that, before money is sent off to the Actors Fund, WGA furnishes assurances to the Court - in whatever periodic filings it makes - that it has made diligent efforts to identify the writer, including following up with the applicable foreign collecting society, CISAC, and any other agency that may possess such information.

D.                The Parties Failed to Respond to the Court’s Concerns About Notice of Foreign Based Writers.

 

At the March 9, 2010 hearing, the Court stated: “I want to know what percentage of these mailings and notices given were given to foreign-based writers and whether that’s going to be an issue or not.”  The Joint Report is silent about notice to foreign based writes who may be entitled to Foreign Levy royalties from WGA. 

 

VII.          REMAINING OBJECTIONS.

Objectors wish to clarify for the Court that they continue, at least until such time as they may withdraw objections to an improved settlement, to assert the following objections to a proposed settlement agreement in its current revised form.  We refer the Court to the arguments made in the original objections of Messrs. Hughes, Avalos and Eisenson.

m        The proposed Settlement Agreement does not confer a meaningful benefit on class members.

 

m        The proposed Settlement Agreement wrongfully permits WGA to collect Foreign Levies on behalf of non-covered writers.

 

m        The proposed Settlement Agreement wrongfully permits WGA to continue to sign away the rights of non-covered writers to 50% of their Foreign Levies.

 

m        The release does not expressly carve out from its scope any wrongdoing relating to primary rights.

 

m        The proposed Settlement Agreement continues to be limited to European Foreign Levies and is silent about foreign levies from other countries.

 

m        Plaintiffs are not adequate representatives for the interests of both covered and non-covered writers.

 

VIII.       CONCLUSION.

As we explained in the original Objections, there is a glaring dearth of evidence introduced by the parties in this case.  Most of the actual evidence about this case was introduced by the Objectors themselves.  WGA has never disclosed to the Court the name of a single AV title whose writer allegedly could not be identified, let alone a list of such titles.  WGA also has not identified a single writer who truly cannot be located, let alone a list of such writers.  Are there really such lists, or are these excuses to allow WGA to keep Foreign Levy money for itself.  That is the ultimate question in this case.  No settlement should be approved that does not provide a vehicle for answering it.

 

DATE: April 16, 2010        LAW OFFICES OF STEVEN J. KAPLAN _PC

 

LAW OFFICES OF JEFFREY WINIKOW

 

 

By:                                                            

Steven J. Kaplan

 

Attorneys for Objectors Eric Hughes, Stefan Avalos and Art Eisenson