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The Hollywood Reporter Covers Johnson & Johnson's Profit Participation Lawsuit Over "Head Of The Class" (July 11, 2021)

Posted by Johnson & Johnson, LLP | Jul 11, 2011 | 0 Comments

Lawsuit Claims CAA Cheated TV Creators Out of Millions in Profits

The Hollywood Reporter

July 11, 2011

by Matthew Belloni

The creators of the hit 1980s sitcom Head of the Class have sued CAA claiming the agency has reaped huge “package fees” from the show but failed to disclose that its own profits would prevent its clients from sharing in the success.

Michael Elias and Richard Eustis created and executive produced the Howard Hesseman high school comedy, which was produced by Warner Bros. and ran on ABC from 1986-91. The show has generated $200 million in revenues, according to a complaint filed today in Los Angeles Superior Court and obtained by The Hollywood Reporter.

But while Elias and Eustis claim they were entitled to 50% of “net profits” from the series, they have received zero profit participation while CAA, which packaged Class, allegedly has received $9 million. In addition to receiving a package fee on the series (a common arrangement where agencies that represent several pieces of talent on a show take a percentage of license fees from the studio rather than a traditional commission), CAA allegedly negotiated “an oral ‘side deal' with WB that allowed CAA to receive 10% of contingent compensation on a more favorable basis than plaintiffs.”

That means CAA continues to receive payouts from the show (with no distribution fees deducted) while Elias and Eustis say they have not been paid any net profits. Worse, CAA allegedly failed to disclose the nature of the package fee, which has been treated as a distribution cost by WB. The complaint says this “imputed commission” has allowed the agency to profit on the backs of the clients it was hired to represent.

CAA declined to comment. UPDATE: The agency sends us this comment: “We deny the allegations and intend to defend the action vigorously.”

Eustis, who was one of the original CAA clients back in 1975, was joined by Elias in 1979. The duo claims CAA agent Bill Habertold them he tried to get them a better definition than “net profits” (which usually produces minimal, if any, actual profits) but he said WB would not budge. Eustis and Elias were dropped as clients in 1995.

There's some interesting language in the complaint challenging the long-standing practice of agents taking packaging fees on TV shows:

“By virtue of the fact that a ‘package fee' allows for an agent to ‘participate' in the revenue derived from a show, ‘package fees' inherently present a conflict of interest: the more the agency negotiates for itself, the more the client is disadvantaged. Accordingly, whenever an agency takes a ‘package fee', the agency should disclose what the ‘package fee' will be and how it will work.”

“In this case,” the complaint goes on, “CAA should have explained that it was going to reap virtually all of the back-end revenues and that Plaintiffs would received none or virtually no revenues because CAA had a more favorable definition than Planitiffs.”

Elias and Eustis claim their lawyers recently asked CAA for a copy of its agreement with WB but the agency said it was oral. The duo claim they first learned about the agency's arrangement with WB when CAA accidentally sent them its own participation statements from Class.

The suit, filed by Neville Johnson, Douglas Johnson, James Ryan and Nausheen Kazalbasch of Johnson & Johnson, alleges causes of action for breach of fiduciary duty, breach of contract, conversion, unjust enrichment, fraud, negligent misrepresentation, intentional interference with contract, unfair business practices and negligence.

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