Fox Rocked by $179M "Bones" Ruling: "Lying, Cheating and "Reprehensible" Studio Fraud
by Eriq Gardner
February 27, 2019


In December 2017, Rupert Murdoch stunned Hollywood by announcing the sale of most of 21st Century Fox to Disney. “A momentous occasion,” Murdoch called the $71.3 billion deal, which came as digital streamers are disrupting the entertainment status quo.

Netflix and Amazon Prime may now be just as important as broadcast television ever was. Meanwhile, the old studio vanguard have slowly embraced digital waters — dipping their toes in first with Hulu before making plans to launch Netflix competitors such as Disney+ and WarnerMedia.

This coming era of vertically integrated businesses delivering content directly to consumers online wasn’t in the cards for the elder Murdoch. And maybe that’s for the best, given a stunning new $179 million award handed down by an arbitrator.







The decision, made earlier this month but until now a secret, pertains to the Fox-produced series "Bones", which starred David Boreanaz and Emily Deschanel and ran on the Fox network between 2005 and 2017.

But the 66-page ruling by arbitrator Peter Lichtman, who concludes Fox executives lied, cheated and committed fraud at the expense of the show’s stars and executive producer Barry Josephson, is about a whole lot more. The nearly $200 million award amounts to the second-largest in television industry history, after a 2011 jury verdict punishing Disney to the tune of $319 million over profit-sharing for "Who Wants to Be a Millionaire?".

It will not only put Murdoch’s Fox sale in a whole new light, but may also raise questions about the future viability of Hulu, plus any platform enjoying what’s pejoratively known as “Hollywood accounting.” The ruling also comes as the D.C. Circuit Court of Appeals has allowed to stand another mega-merger between AT&T and Time Warner, an example of vertical integration between a distributor of content and a producer.







In coming to a decision, Lichtman describes how some of Fox’s top executives, including 21st Century Fox president Peter Rice and Fox TV CEO Dana Walden (soon to be top executives at Disney) plus Fox TV chairman Gary Newman (leaving Fox) “appear to have given false testimony in an attempt to conceal their wrongful acts.” According to the ruling, Fox has taken a “cavalier attitude toward its wrongdoing" and exhibits a "company-wide culture and an accepted climate that enveloped an aversion for the truth."

"Peter Rice and Dana Walden are highly respected leaders in this industry, and we have complete confidence in their character and integrity," said Bob Iger, chairman and CEO of The Walt Disney Company, in a statement on Wednesday. "Disney had no involvement in the arbitration, and we understand the decision is being challenged and will leave it to the courts to decide the matter."







Slamming the company with a punishment that includes $128 million in punitive damages, or five times the amount of compensatory damages, Lichtman points out that the award is 0.6 percent of 21st Century Fox’s stipulated net worth. He muses whether it’s really enough.

“In fact, one could question whether a five to one ratio given Fox’s financial condition and lack of contrition serves to deter the wrongful conduct at issue here, or whether it will be considered part of the cost of doing business,” writes the arbitrator.

"What we have exposed in this case is going to profoundly change the way Hollywood does business for many years to come," says John Berlinski, who represented the actors and Kathy Reichs in the case. Dale Kinsella, on behalf of Josephson, has filed a petition today to confirm the arbitration award. (Berlinski did, too.)







Fox vehemently disagrees with the decision. The company has now tapped star litigator Daniel Petrocelli, fresh off a win defending the AT&T/TW merger, in an attempt to overturn it.

"The ruling by this private arbitrator is categorically wrong on the merits and exceeded his arbitration powers," reads a statement from 21st Century Fox. "Fox will not allow this flagrant injustice, riddled with errors and gratuitous character attacks, to stand and will vigorously challenge the ruling in a court of law."

https://www.hollywoodreporter.com/thr-esq/fox-rocked-by-179-million-bones-ruling-lying-cheating-reprehensible-studio-fraud-1190346

After Stunning "Bones" Decision, Fox Aims to Wipe Out $128M in Punitive Damages
by Eriq Gardner
April 23, 2019


For years, some plaintiff-side litigators in Hollywood have complained that when it comes to arbitration, the cards are stacked in favor of big studios, which repeatedly use these alternative dispute-resolution forums.

But in February, the tables turned when one JAMS arbitrator decided that not only did 21st Century Fox cheat the creative talent behind "Bones" out of tens of millions of dollars in profits, but that the fraud was so reprehensible that Fox should also pay an additional $128 million in punitive damages.

Now comes the second round.





On April 29, "Bones" executive producer Barry Josephson, stars David Boreanaz and Emily Deschanel, and Kathy Reichs, author of the Temperance Brennan novels on which the series is based, will defend their stunning success in Los Angeles Superior Court.

In turn, Fox finds itself in an unfamiliar position — hoping to overturn something that happened in arbitration. Peter Lichtman, the JAMS arbitrator, suggested in his ruling that Fox's top executives gave "false testimony" in an attempt to justify the low license fees that Fox Broadcasting, Hulu and Fox’s foreign affiliates were paying its studio division for rights to air the series.





Fox certainly doesn't agree with Lichtman's conclusions — namely, that it had any obligation to review nonaffiliate transactions (like the deal for House) to ensure that "Bones" was getting a fair market license fee.

The studio, which was sold by Rupert Murdoch to Disney, also takes issue with how the arbitrator "attacked Fox witnesses in personal terms."





But such gripes are relegated to footnotes now as Fox's attorneys surely know how steep an uphill climb it would be to do anything about the $32 million in compensatory damages, $10 million in prejudgment interest, and more than $9 million in attorney fees and costs.

After all, public policy favors the sanctity of arbitration, and although there's theoretically some room to vacate an arbitration award for misconduct by an arbitrator, it's basically unprecedented in the entertainment industry.





Fox will let what's above go, but it is not accepting the additional $128 million punitive award. Not when Fox's agreements with "Bones'" stars provided that the "sole remedy against Fox for any alleged failure … to comply with the terms … shall be actual damages" and that Josephson, Boreanaz, and Deschanel contractually agreed to "waive any right to seek … punitive relief in connection with any such alleged failure."

Since the contract forbids punitive damages, argues Fox's attorney Daniel Petrocelli, the arbitrator has exceeded his authority.









To this contention, the creatives make three counter-arguments.

First, in what they frame as a "classic case of buyer's remorse," the Josephson side says that having pushed this dispute into arbitration (remember, it didn't begin there), Fox is "bound by the result."

The two sides previously clashed over the availability of punitive damages during the arbitration process. According to Josephson's attorney Dale Kinsella, that means Fox forfeited any later objection. Not so, responds Petrocelli, arguing that Fox may have addressed liability issues but preserved challenges over remedies.





Second, the Josephson parties argue that the arbitrator voided the punitive damages waivers in the Bones agreements as a matter of public policy.

The two sides point to competing legal precedent about whether it is permissible to contract around punitive damages. The creatives believe that fraud, by its nature of being unforeseeable, means that punitive damages can't be foreclosed when it happens — but this is all a moot issue anyway because legal error or not, this isn't reviewable.

Fox interprets past appellate decisions upholding contractual bars on punitive damages to mean a check on an arbitrator's powers.





Third, even if the punitive damages waiver applies, the Josephson side says the arbitrator still didn't exceed authority because such a waiver only applies to claims against 20th Century Fox Television, not affiliated entities, and that the waiver only applies to contract claims.

In his decision, Lichtman found the huge punitive damages award was warranted not from any direct contract breach, but due to the way that Fox tortiously interfered in the licensing of "Bones" to Hulu.

(The arbitrator essentially found Fox's studio division gave its sister companies the benefit of digital rights for very little consideration.)





Fox believes that punitive damages aren't available for contract breaches anyway, so the agreements would make no sense if the punitive damages bar only applied to contract breaches. Regardless, Fox sees the tort claims involving Hulu as "inextricably connected with Fox’s compliance."

Clearly, there's a lot of legalese here, and the debate over punitive damages makes for less exciting reading than Lichtman's write-up of testimony during the arbitration and his conclusion that Fox exhibited a "company-wide culture and an accepted climate that enveloped an aversion for the truth."

Nevertheless, the coming decision figures to be historic. Either a judge upholds one of the biggest punitive damage awards in entertainment industry history or a judge takes the super-rare step (in any industry) of correcting an arbitration award. It will be a landmark ruling no matter how it goes.

https://www.hollywoodreporter.com/thr-esq/stunning-bones-decision-fox-aims-wipe-128m-punitive-damages-1203988

"Bones" $128M Punitive Damages Award Against Fox Reversed by Judge
by Ashley Cullins
May 2, 2019


Fox doesn't have to pay $128 million in punitive damages to the creators and stars of "Bones", a California judge has ruled.

Earlier this year, arbitrator Peter Lichtman levied one of the largest damages awards in Hollywood history against Fox, finding executives lied, cheated and committed fraud at the expense of the show’s stars, Emily Deschanel and David Boreanaz; executive producer Barry Josephson; and Kathy Reichs, who wrote the books upon which the series was based.

They sued in 2015 claiming they were shortchanged on their share of the profits, and the fight was subsequently moved to arbitration under the terms of their contracts.





Lichtman awarded the plaintiffs $179 million: $128 million in punitive damages, $32 million in compensatory damages, $10 million in prejudgment interest and more than $9 million in fees and costs.

Fox challenged the punitive damages, arguing the studio's contracts expressly precluded an arbitrator from issuing such an award. Los Angeles County Superior Court Judge Richard Rico on Thursday agreed.

"The motion to confirm the award is denied, the motion to correct the award is granted," states the minute order. "Punitive damages shall be stricken from the award. The award will be corrected and confirmed as so modified." Rico has not yet issued a full ruling explaining the reasoning behind his decision.





“Today's decision in no way impacts the arbitrator's findings that our clients are owed more than $50 million for Fox’s fraudulent and deceitful accounting," said Daniel Saunders, the attorney for Boreanaz, Deschanel and Reichs, in a statement to The Hollywood Reporter.

"It deals only with the technical issue of whether our clients waived their right to receive punitive damages. As the arbitrator concluded, they did not — and we look forward to showing the Court of Appeal why it should reverse today’s ruling.”





Added Josephson's attorney Dale Kinsella, "We respectfully and profoundly disagree with the trial court’s order eliminating the punitive damages award against Fox. While the ruling contains no reasoning, we are confident that when the appellate court reviews the Award with the required deference, without regard to the trial court’s finding, the original award will be reinstated."

Fox on Thursday also issued a brief statement in response to the decision: "We are pleased with the Court’s decision to strike punitive damages from the award and vindicating our position. We look forward to concluding the litigation.”

The studio was represented by Daniel Petrocelli, who hasn't personally commented on the ruling.

https://www.hollywoodreporter.com/thr-esq/bones-128m-punitive-damages-award-fox-reversed-by-judge-1207153

"Bones" Profit Battle Ends as Fox & Disney Settle with Stars Emily Deschanel, David Boreanaz & EPs
by Dominic Patten
September 11, 2019


Nearly four years after executive producer Barry Josephson first filed his breach of contract and fraudulent inducement complaint against Fox over millions in alleged lost profits from the long running Emily Deschanel and David Boreanaz-led series, the now Disney-owned entity has reached a deal to end the legal battle.

Cloaked in confidentiality, the agreement is said to be a “substantial” payout to the actors, the Kinsella Weitzman Iser Kump & Aldisert LLP repped Josephson and fellow EP and author Kathy Reichs, I hear.

The settlement was revealed in dismissal paperwork that Deschanel, Boreanaz and Reichs’ lawyer John Berlinski of Kasowitz Benson Torres LLP filed for both sides in Los Angeles Superior Court this morning asking for “entire action of all parties and all causes of action” to be tossed “with prejudice.”

https://deadline.com/2019/09/bones-profit-lawsuit-settlement-emily-deschanel-david-boreanaz-fox-disney-barry-josephson-1202731588/