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Notes from an Arbitration-Lessons learned in suing an indie film sales agent

a guest post by Michael D. Akers

The world of distribution is changing constantly with the decline of DVD and the fragmentation of digital platforms.  The challenges are even greater when you turn to the international marketplace.  Like many filmmakers, we turned to a foreign sales agent to exploit the rights for our latest film MORGAN.

While we are going to use the word “agent/agency” in this article, we believe that inter-changeable terms could include Producer’s Rep, Distributor, Aggregator, Consultant, etc.  Because, as we see it, these are the middlemen who can completely destroy you by failing at their intended purpose:  to make you a profit.  Many of these companies operate under the “more is better” practice where they will take on hundreds or thousands of titles so that the law of averages puts money in their pockets.  While that may make sense for them, it makes no sense for the indie filmmaker.  After all, we’ve taken all the risk.

A few thousand dollars one way or the other can determine when (or IF) we get to make our next films.  We count on the expertise and diligence of these agents to get the best possible deals.  We need them to be sharks.  Our particular agent promised us high returns across more territories than we were capable of getting for ourselves.  All the agent wanted was a commission.  Sound too good to be true?  It was.

So what happens when you have signed with an agent who is not marketing your film effectively, who is not selling your film for amounts that you feel comfortable with, and/or may not be trying to exploit your rights at all?  Obviously you call them and try to work it out because, after all, you are supposed to be working together to make money for each other.  But let’s suppose your agent is a total [expletive] who doesn’t even know what a deliverable is, and you want to terminate your relationship.  You turn to your contract to see what recourse you have. If you feel really convinced you are right, you attempt to terminate it.  That is what we did.  And this is what we learned from suing our foreign sales agent to terminate our agency agreement.

1)      ARBITRATION CLAUSE.  Chances are that you have some kind of clause that may spell out how both parties are to resolve a dispute over the contract.  You probably have never given it much thought.  I know we didn’t.  We had blindly accepted the language as standard, figuring the mere threat of arbitration was a deterrent from the proceeding itself.  But, as our dispute rose to epic levels and arbitration became necessary, this paragraph became our master.  Also worth noting, we found out that generally you cannot go to court if you have an arbitration clause (possibly if both parties agree, maybe) because a judge will send the case back to arbitration, ruling that the courts have no jurisdiction.  This goes for appeals as well.  Generally, courts will not hear appeals of arbitration cases.  Nor will the:

2)      ARBITRAL BODY:  Look at the arbitration clause:  Does it specify who the arbitral body is or under which state’s laws the contract will be interpreted?  Does the prevailing party have the right to collect attorney’s fees?  You may find, like we did, that we should have really spent time on this paragraph.  We knew nothing of the arbitration company.  Did they like indie filmmakers?  Were they studio oriented?  How much do they charge?  What are their rules of process?  You will be BOUND by these rules if you go to arbitration.  Take the time to look up the company in your contract.  Ask around.  Had we looked into any of those questions, we would have NEVER agreed to use our arbitral body because of:

3)      THE ARBITRATOR.  The arbitrator is an attorney working somewhere in the entertainment industry (hopefully).  You and the opposing party receive a list of attorneys to select from, along with their resumes.  It’s not really possible to see what other cases they worked on or how they ruled in those cases.  Your attorney may be able to find out more information about them, but it’s pretty tough.  In our case, both parties agreed quickly to one arbitrator.  This is great because we wanted the case wrapped up as soon as possible so we could get on with exploiting our film.  No such luck.  Upon meeting an arbitrator, you will immediately ask yourself, WHY would an attorney sign up to do this?  Answer one:  to bill you.  Constantly.  The arbitrator charges you for everything he does in the arbitration.  He has no checks or balances in this regard.  So if your arbitrator is trying to send his kid to college, you might as well sign over your car right now because he can make up any number of hours he wants and send you a bill.  You have to pay it or you will default.  Answer two:  because he’s not qualified to be a REAL judge.  So he’s going to take it out on you.  Whatever his interpretation of the laws, whatever his opinion is of your film, your budget, your hair color, he can rule however he wants to.  (As a matter of record, our arbitrator actually told us that nobody cares about our movie or this case.)  And again, there are NO checks and balances on this because the arbitral body hides behind its motto:

4)      AN INFORMAL, EXPEDIENT AND COST EFFECTIVE PROCESS.  We elected not to have full time representation because of the cost.  Our agent however did hire a full time lawyer.  Even though we had the promise of an informal process, the arbitrator NEVER looked out for our best interest.  He let the opposing attorney antagonize and threaten us.  He let the opposing attorney cause repeated and unnecessary delays.  He scheduled paperwork to be due while we were traveling on the film festival circuit.  But he gave time extensions to the other side.  He gave the opposing attorney such wide latitude in discovery that we turned in over 1000 pages of evidence!  Meanwhile, he only required the opposing attorney to turn in about 10.  So this impartial, expedient, cheap process was not our experience.  Our arbitration took SIX months and cost a lot of money.  The entire process from breach to verdict was a year because:

5)      THE BEST OFFENSE IS A GOOD DEFENSE.  From our experience, being the CLAIMANT (the party bringing the action, namely, us) puts in you a much tougher spot that being the RESPONDENT (the party being sued, the agent).  We had to prove all of our claims, which meant that we had to turn over clear and compelling evidence.  We thought we had plenty.  But the arbitrator’s rulings slowly whittled away what we thought was our best evidence.  The respondent does not really have to do anything.  Our agent literally just sat on our film’s foreign distribution rights stalling all the energy we had been creating for a year.  Now we might be in trouble on this one, but we really would consider just breaching the contract and exploiting the film ourselves (next time).  It would then be up to our agent to prove the breach, the damages, etc.  Definitely DO NOT consider this legal advice.  It’s just our opinion.

6)      AGENCY COUPLED WITH AN INTEREST.  Scour your contract right now for this phrase.   It is crucial when it comes to terminating your agreement.  Now what we are about to say is only a general rule that (true to the law) comes with a million exceptions.  Nonetheless, in an agency contract, you (as the principal) ALWAYS have the POWER to terminate a contract with your agent AT WILL.)  It is imperative that you understand that you can still be liable for the damages that this causes your agent (i.e., the MG or license fee they already paid you, marketing expenses they can prove they spent, etc.).  Our agent did countersue us for damages.  But they also sued us saying that we did not have the RIGHT to terminate the agreement.  As we are now painfully aware, the RIGHT to terminate is not the same as the POWER to terminate.  As a rule, you CANNOT terminate your contract with an agent if it is “coupled with an interest.”  That is to say, that the agent has some kind of interest “in the thing the contract is about.”  What is this “interest”?  What is the “thing”?  Who the hell knows!  It isn’t defined by the law.  What the interest ISN’T has sort of been sketched out over the last hundred years.  Generally, simple monetary considerations are NOT considered interest (i.e. commissions, payments, etc.).   We thought we were well within our POWER to terminate because the agent did not pay any money upfront.  And since the agent did not generate any deals other than those we brought to them, it would seem TWICE as obvious that our distributor had NO interest in our film.  But, referring to #2 above, our arbitrator was grossly unqualified to interpret this kind of law (our research shows these agency coupled with an interest cases frequently end up in appeals court because of their complexity).  Our arbitrator ruled that our contract was coupled with an interest because of some postcards that the agent had printed out in Berlin (have we mentioned that you can’t (technically) appeal?).  I’m sure that now every distributor is now calling their attorney to add this paragraph, but if you, the filmmaker, can, keep it out.  The agent is covered anyway, because in the event you terminate unfairly, you are on the hook for any damages that the agent suffers (and probably their attorney’s fees).

7)      DEFINE DEFINE DEFINE.  Boilerplate.  Fear that word.  Just because everyone thinks they know what marketing, customary efforts, good faith or even all-rights is, WRITE IT DOWN.  This is your business and your money we are talking about.  Define every single term.  We did not do this.  So when we claimed that our distributor did not use “reasonable and customary efforts” to license, market and sell our film; that they did not “consult with us” on this marketing and licensing of our film; that they did not generate offers that we could have gotten ourselves, we were on the hook to prove it.  We thought it was obvious that our agent should have a Facebook page, and maybe post our movie on it, or on their website, maybe even the trailer (shocking!).  At least they should have spelled our names right on their listing!  To our 500 pages of print-outs, the arbitrator balked, saying that is was “unpersuasive.”  Outline what you think reasonable and customary efforts are.  We really recommend setting a minimum amount acceptable for the contract to remain in force.  Define marketing.  What efforts do you expect the distributor to make?  Be as specific as you can.  (I am now hearing horror stories of friends’ films sitting on their distributors’ shelves in limbo.  They won’t be getting the rights back for years and the film won’t be generating any more revenue because the distributor finds it financially unviable to exert further effort.)   Go through your contract as though you can be shot by a firing squad.  Because that’s how it feels when you go into an arbitration hearing and every sentence is scrutinized by both sides, each interpreting it to favor their position.  If the arbitrator can’t see clear convincing evidence that your definition is correct, you cannot prove a breach of contract.

8)      CONSULT WITH AN ATTORNEY.  A GREAT ONE.  Unfortunately no lawyer could have reasoned with our agent in order to avoid arbitration.  The lawsuit in and of itself was ridiculous.  Though we only had an attorney on retainer for consultation, the way the arbitrator pushed us around made us wish we could have afforded complete representation (or an assassin).  It is worth noting here that we changed our law firm part way through the proceedings.  Just like the discussion of the arbitrator above, make sure your own attorney is qualified to handle your particular dispute.  The law is complex and the process is a game.  You need a fighter.  You want to feel really great about who is representing you.  Don’t be afraid to fire people.  Keep looking until you find the right lawyer.  How will you know?  Trust me, you will.

9)      KEEP RIDICULOUSLY COMPLETE RECORDS OF EVERYTHING THAT HAPPENS…EVER.  So after all of this you may be surprised to find out that we prevailed.  (Can you imagine what we’d say if we LOST?)  How?  Every single email, letter, check, even the envelope that the check came in.  Yep, we keep all of that stuff and more.  Why?  Look through your contract and see if you find a paragraph that discusses how to amend/addend the contract.  Usually it stipulates that it has to be done in writing.  It turns out that most states consider email “written communication.”  While we were not necessarily saving all of that paperwork to prevail in a court hearing, that’s what ended up happening.  The agent not only lost their frivolous countersuit because of those emails, they were also held to a strange law in California under which two parties can “agree to agree” just by agreeing to the major terms of an agreement.  (Confused?  It would take a book to explain THIS law.)  Specifically, in those emails, we had offered the agent a sum of money to settle the case.  Though they originally agreed to accept it, they later reneged.  The arbitrator ruled that the first agreement was permanent.  Though it was on a technicality, a win is a win.

10)   BE A SORE WINNER.  But the award by the arbitrator was lackluster.  He is a studio attorney who clearly thought that our case was frivolous and meaningless.  He just couldn’t understand that to us, it meant everything.  In the end, the arbitration cost us almost as much as our film and stole a year of our lives.  We are now out to prove the arbitrator wrong.  Filmmakers DO care about their movies and filmmakers WILL care about this verdict.  He could have single-handedly moved independent filmmaking into a new era of mutual responsibility.  But instead his final opinion read more like a warning to the distributor on how to fix their contract so that they can more assuredly screw over the next filmmaker.

11)   TELL YOUR STORY.  Since we’ve started going public, we are hearing many stories of frustration and anger about these agency relationships.  Filmmakers worry that if they speak up, the agencies may retaliate.  Well, here are two things you should know.  One, they probably WILL retaliate.  Ours did.  They told film festivals, foreign sales agents, distributors and other people we do business with that our film was “unavailable.”  They tied up our film’s distribution for almost an entire year.  We were distraught.  But then we realized number two:  we are the content creators.  Festivals, distributors, aggregators and (most importantly your fans) want your content.  These agencies don’t have jobs unless someone makes them something to sell.  Thankfully, we have been able to pick up where we left off, though the film’s value has certainly suffered from sitting on the shelf for a year.

As we sat in the hearing, reading aloud the angry emails that had flown back and forth between us and our agent, we were struck by a sad realization:  this whole process was just a big waste of time and money.  WE were paying the arbitrator to decide if WE had the right to terminate a contract with an agent who was supposed to be making US money by exploiting a movie WE paid for.  Who were these people and why were they being granted ANY validity whatsoever?  We are sharing our story in the hopes that it will help save some other filmmaker from falling into the same traps we did.  And if you do find yourself having to take that big leap, remember:  arbitration is war and you have to win by any means necessary.

None of this article should be construed as legal advice.  This is our opinion base on our experience. 

About the author:

Michael D. Akers is an American film director, producer, screenwriter and editor. In 2000, he founded United Gay Network (UGN) with his longtime partner, Sandon Berg. Morgan is Akers’ fourth in a line of genre defining films.  His first film, Gone, But Not Forgotten, altered the queer indie landscape with an adept story made universal through common human drama and incidental sexuality and went on to win numerous audience awards after playing in more than 30 festivals world-wide. Gone, But Not Forgotten ultimately became one of the most successful independent LGBT films of all time.

 

Sheri Candler April 11th, 2013

Posted In: Distribution, International Sales

Tags: agency coupled with an interest, arbitral body, arbitration, arbitration clause, arbitrator, claimant, foreign sales agent, independent film, lawsuit, Michael D. Akers, MORGAN, Producer's rep, respondent, sales agent, United Gay Network