Talent agency act survives suit, clarity remains elusive

Daily Journal

May 10, 2013

By Neville L. Johnson, founding partner specializing in entertainment litigation at Johnson & Johnson LLP

& Eric Mueller, editor-in-chief of the UCLA Entertainment Law Review

The National Conference of Personal Managers (NCOPM) lost the first round of its fight against the constitutionality of the California Talent Agencies Act (TAA), California Labor Code Section 1700 et seq., on March 5, when U.S. District Court Judge Dean Pregerson granted a motion to dismiss a lawsuit challenging the TAA. NCOPM v. Edmund G. Brown, No. CV 12- 09620 (C.D. Cal.). So where does this leave the current regulation of talent agents and personal managers?

The TAA

The state Legislature has grappled with the procurement of employment in the entertainment industry for decades. The ongoing regulatory tension comes from the attempt to simultaneously govern personal managers and talent agents – professions which overlap. Managers often have no choice but to seek employment for clients who are unable to get licensed agents.

The enactment of the TAA in 1978 established the current regulatory framework. The growing concern was the attempt to bifurcate the roles and regulation of “personal managers” and “talent agents.” The TAA aimed to clarify this distinction by redefining “artists' managers” as “talent agents.” According to the TAA, talent agents are individuals engaged in the occupation of procuring, offering, promising or attempting to procure employment for an artist. Personal managers, in theory, act strictly as coordinators and advisors for an artist's career opportunities. The TAA establishes that no person can act as a “talent agent” without first obtaining a license from the labor commissioner.

A disgruntled artist believing a personal manager has violated the TAA can file a “petition to determine controversy” with the labor commissioner, and the decision then may be tried de novo in superior court. (The labor commissioner originally had exclusive initial authority to hear and resolve disputes. However, the U.S. Supreme Court held in Preston v. Ferrer, 552A U.S.A 346 (2008), that when parties agree to arbitrate all questions arising under a contract, the Federal Arbitration Act supersedes state laws vesting jurisdiction over a dispute in an administrative forum, thus allowing arbitration of unlawful procurement disputes.)

Managers often have no choice but to seek employment for clients who are unable to get licensed agents.

Until 2008, the vast majority of claims resulted in management contracts being voided ab initio and all earned commissions being forfeited or, if previously paid, ordered disgorged. That year, the state Supreme Court decided Marathon Entertainment v. Blasi, 42 Cal. 4th 974 (2008), which held that while fully voiding the parties' contract is an available remedy, the labor commissioner has discretion to apply the doctrine of severability to enforce the remaining lawful portions of management agreements.

Following Blasi, the labor commissioner began applying severability and awarding managers a portion of their earned commissions. For example, in Dwight Yoakam v. The Fitzgerald Hartley Co., No. TAC-8774 (2010), the commissioner chose not to void ab initio oral contracts between Dwight Yoakam and Gary Ebbins, a former personal assistant turned “in-house” manager, and between Yoakam and The Fitzgerald Hartley Co. (FHC), Yoakam's music management firm. The commissioner instead severed the various unauthorized procurement provisions. FHC had repeatedly violated the TAA by negotiating for certain services that did not fall within the act's recording contract exemption for music managers, but the commissioner was persuaded to apply the severability because the William Morris Agency performed many of the licensed agent activities. This demonstrated the collateral nature of the procurement activities in a personal manager agreement, thus warranting severability.

Despite the increasing use of severability, however, the commissioner still voids management contracts ab initio when the evidence demonstrates that the “central purpose” of the contract is to unlawfully procure engagements.

For instance, in Kyle Bluff v. Paris Djon, No. TAC-17277 (2011), the commissioner voided a music management agreement in its entirety and ordered the management company to disgorge all of the earned and previously paid commissions. Similarly, in Duane Chapman v. Boris Krutonog, No. TAC-3351 (2012), Duane “Dog” Chapman was awarded $534,450 in a claim against Boris Krutonog, an executive producer on the series “Dog the Bounty Hunter.” The commissioner determined that Krutonog's actions to recover producer's fees on the series were in fact a veiled attempt to recover compensation for managing the Chapmans.

Of course, the TAA provides personal managers with a safe harbor when they “act in conjunction with and at the request of a licensed talent agency in the negotiation of an employment contract.” In Tony Plana v. Tracy Quinn, No. TAC-15652 (2012), Tracy Quinn, Tony Plana's talent manager, had agreed with Plana's talent agent that she would reach out to a casting talent executive for the TV show “Ugly Betty.” The commissioner cited the historical tendency to treat acts completed in furtherance of securing employment as part of “the negotiation,” and held that Tracy Quinn was entitled to the safe harbor. Deciding not to void the management agreement in its entirety, the commissioner held that Quinn's additional unlawful procurement activities were entitled to severance.

Conversely, in Josh Todd v. Todd A. Meagher, No. TAC-13418 (2012), the commissioner held the TAA did not provide Todd Meagher, rocker Josh Todd's personal manager, with safe harbor protection where he agreed with Todd's talent agent that they “should work every angle” together. The commissioner ultimately held that Meagher's entire management agreement was illegal, void and unenforceable. Likewise, in Brian Transeau v. 3 Artist Management, No. TAC-7306 (2009), the commissioner held that 3 Artist Management was not entitled to safe harbor protection when the evidence demonstrated that manager's practice was “to solicit, procure, negotiate and then pass off the contract to a licensed talent agent” to finish the deal. Simply having a licensed talent agent finalize the deal is not sufficient to warrant safe harbor protection.

The NCOPM

This history leads us to the TAA‘s most recent court challenge. In November 2012, the NCOPM filed a constitutional challenge against the TAA on the grounds that it unfairly singles out personal managers without due process, is unconstitutionally vague for failing to define “procure employment,” violates the First Amendment by restricting commercial speech, violates the Commerce Clause by discriminating against out-of state personal managers, and violates the 13th Amendment – resulting in involuntary servitude – because personal managers are not properly compensated for labor, and violates the Contracts Clause.

Judge Pregerson dismissed each NCOPM argument, stressing that California courts have interpreted the phrase “procure employment” on multiple occasions and determined that it is not vague. The court found no merit in the First Amendment challenge, noting that the TAA regulates conduct, not speech, nor was the court persuaded by the Commerce Clause challenge, as there was no proof that the managers were ever refused licenses because they were located outside of California. The 13th Amendment challenge was found wanting because personal managers have full discretion to refrain from procuring employment for their clients or to obtain a license to do so. Finally, the court ruled that the Contract Clause is only relevant when a law is enacted after the formation of a contract, which did not occur in this case. The NCOPM has appealed this decision.

Since Blasi was decided, the commissioner has heard 39 TAA disputes. Managers have found themselves on the losing end of all 15 cases that directly addressed unlicensed procurement activities. Of these, 11 have resulted in the management contracts being voided ab initio, while only four have been held to be severable.

Severability is far from a guarantee. The most comprehensive protection for personal managers against voided management contracts is to engage talent agents at the earliest feasible stage, something often very difficult to do. Due to the consistently adverse rulings by the labor commissioner, which so often result in voided contracts and disgorged commissions, personal managers should seriously consider and probably negotiate mandatory arbitration clauses in their management agreements to present their cases in forums that are more favorable to their position. Managers should weigh the cost of a labor commissioner hearing and a superior court trial and attendant appeals against the cost and speed of arbitration. Until the Legislature modifies the law relating to procurement in the entertainment industry – unlikely given the politics involved – personal managers must continue to tread lightly.

Neville L. Johnson is a founding partner specializing in entertainment litigation at Johnson & Johnson LLP.

Eric Mueller is a 3L at UCLA and editor-in-chief of the UCLA Entertainment Law Review.