Monthly Archives: January 2008

Blasi v. Marathon: A Solomonic decision?

The California Supreme Court issued its unanimous opinion in Marathon Entertainment v. Blasi today. (Link below in next post.)

The Blasi case arose when actor Rosa Blasi reneged on paying her managers at Marathon Entertainment a commission. She claimed that it was illegal under California law for Marathon to act as a talent agent which it allegedly did when it procured roles for her. She tried to have her contract with them declared void. Marathon argued that it was not governed by the Talent Agencies Act and that even if it was it should still be paid for those services that it provided legally to Blasi.

Here is my summary of the Court’s key points (along with some editorializing) from its unanimous decision:

1) The California Talent Agencies Act applies by definition to any person who procures work for an actor. As the Court concluded: “Any person who procures employment — any individual, any corporation, any manager — is a talent agency subject to regulation…. Consequently, as the Courts of Appeal have unanimously held, a personal manager who solicits or procures employment for his artist-client is subject to and must abide by the Act.” Thus, it does not matter what title one uses – agent or manager – if one is engaged in procurement of work one is an agent and thus covered by the TAA. And this is true even in the case of single incidents of procuring such work.

This result is precisely what Marathon, the managerial firm repping Blasi, wanted to avoid. The court brushed aside the claim of Marathon that because the Talent Agencies Act has the word Agencies in the title that it somehow should not apply to managers.

The court concludes that the TAA applies to “managers” “to the extent they stray into doing the things
that make one a talent agency under the Act” The court concurred with the California Entertainment Commission’s approach: it is not managers or agents per se that are subject to the TAA but the “activity of procuring employment.” Anyone who does that is subject to the requirements of the TAA, no matter what one calls oneself.

2) Did Marathon “procure employment” for Blasi? They did, the court states, agreeing with the Labor Commissioner and the lower court. But not aparently for Blasi’s role in Strong Medicine, despite Blasi’s claim that they did.

3) So if Marathon procured employment without a license in violation of the TAA, what is the remedy available to Blasi? If a manager procures employment for an actor but is not licensed under the Act can an actor refuse to pay the manager?

The court notes that the TAA does not provide an answer. It is silent, “completely silent,” the court notes. So in cases like this courts turn for answers to other sources of law. Here they turn to the longstanding common law principle of “severability.” In California back in 1872 the legislature put into law its view of that common law provision, as the court notes: “Adopted in 1872, [the Civil Code] codifies the common law doctrine of severability of contracts: ‘Where a contract has several distinct objects, of which one at least is lawful, and one at least is unlawful, in whole or in part, the contract is void as to the latter and valid as to the rest.’… By its terms, it applies even — indeed, only — when the parties have contracted, in part, for something illegal. Notwithstanding any such illegality, it preserves and enforces any lawful portion of a parties’ contract that feasibly may be severed.”

While the Labor Commissioner may void a contract between a manager and an actor it does not have a duty to do so. As the court concludes: “The Labor Commissioner is empowered to void contracts in their entirety, but nothing in the Entertainment Commission’s description of the available remedies suggests she is obligated to do so, or that the Labor Commissioner’s power is untempered by the ability to apply equitable doctrines such as severance to achieve a more measured and appropriate remedy where the facts so warrant.” The Labor Commissioner retains the equitable option to sever.

The court took a polite swipe at more recent Labor Commissioner decisions denying managers the right to recover: “With due respect, the Labor Commissioner’s assessment of the legislative history and case law is mistaken; as we have explained, neither requires the rule she proposes. And any view that it would be better policy if the Act stripped the Labor Commissioner (and the superior courts in subsequent trials de novo) of the power to apply equitable doctrines such as severance would be squarely at odds with the Act’s text, which contains no such limitation.”

4) So with this analysis undertaken, what about applying it to the facts of this case? Since the court now allows for the possibility of compensation for genuine managerial as opposed to unlicensed services (i.e., procuring employment), will Blasi have to pay Marathon for what Marathon claims were other ordinary managerial services?

One argument to support non payment made by Blasi was that severability could not be applied to a contract that called for payment for a wide range of undifferentiated services. But the court held that that was not an obstacle since a court could figure out whether or not a manager has provided legal services alongside of illegal, employment procuring, services.

A second argument made by Blasi was that the illegal, or unlicensed, conduct of Marathon should render the entire contract with her managers void. But the court said it was appropriate for the Labor Commissioner or courts to consider the “central purpose” of the contract and “if they determine in a given instance that the parties intended for the representative to function as an unlicensed talent agency or that the representative engaged in substantial procurement activities that are inseparable from managerial services, they may void the entire contract. For the personal manager who truly acts as a personal manager, however, an isolated instance of procurement does not automatically bar recovery for services that could lawfully be provided without a license.”

This “central purpose” doctrine, the court admits, will require a “case-by-case” fact specific inquiry: “Inevitably, no verbal formulation can precisely capture the full contours of the range of cases in which severability properly should be applied, or rejected. The doctrine is equitable and fact specific, and its application is appropriately directed to the sound discretion of the Labor Commissioner and trial courts in the first instance. As the Legislature has not seen fit to preclude categorically this case-by-case consideration of the doctrine in disputes under the Act, we may not do so either.”

Thus, the case is remanded to the trial court for precisely this “fact specific inquiry” to determine if Marathon indeed performed legal services for Blasi for which they deserve to be paid.

Some may argue that this leaves the law unsettled: after all is said and done, what will the contours of the “central purpose” doctrine really look like? The court could have developed a more nuanced, reliable and predictable approach to that doctrine but chose not to do so. That leaves a gray area for talent, managers, agencies and the lawyers who represent them. Or put another way it suggests that the parties to such contracts now have an option: negotiate more fully and clearly ex ante or risk letting the terms of the contract be defined by the Labor Commissioner or the courts ex post. This looks like a variant of what legal scholars call a “muddy default” rule – if the parties to a contract are unwilling to spend the time up front to resolve a potential problem then it will be left up to the courts or Labor Commissioner, who will be free to fashion a solution as they see fit.

5) In a final concluding comment, however, the court did strongly indicate the need to address the fundamental cause of the problems in this area. It noted that there is a “black market” now in unlicensed talent agencies that creates the potential for abuse. Talent looking for a leg up in the industry may fear complaining about abusive managers would lead to black listing. A broad right to renege on contracts may be of little use for those who are at the greatest risk but instead can be used against well-intentioned managers by successful talent who are “in a position to turn and renege on commissions.” Thus, the court believes the state legislature and guilds need to revisit the design of an appropriate enforcement regime for the TAA.

California Supremes Look at Hollywood: Blasi Case decided

The California Supreme Court weighed in on the long running dispute over the appropriate roles of Hollywood talent managers and agents today in a unanimous opinion. While I am still digesting the 31 page opinion, the long and short of it is actress Blasi may have to pay up to her former managers at Marathon if they can prove on remand that certain facts are indeed true. I will get back to you with a fuller analysis in a few hours.

Government "Union" in China: "Irrelevant"

The widely respected director of the China Labour Bulletin, Han Dong Fang, is calling into question the relevance of the Chinese government labor arm, the ACFTU.

As the AFP noted recently:

At least one strike involving more than 1,000 workers occurs every day in China’s manufacturing hub in the Pearl River Delta area, underscoring rising labor unrest in the country, a labor activist said Tuesday. All the protests in the key manufacturing base in southern China are self-organized, “questioning the relevance” of the official All-China Federation of Trade Unions (ACFTU), said Han Dongfang, who monitors the Chinese labor movement from Hong Kong.

Labor unrest growing in China

China’s Real Labor Movement: Workers Riot at Maersk Factory in Southern China

While the “leaders” of the International Trade Union Confederation (See the post below) are sipping tea in the Great Hall of the People with the Butchers of Beijing, the real Chinese labor movement is emerging on the ground. As Han Dong Fang, the leader of the independent Chinese Labour Bulletin based in Hong Kong, notes, there are protests by thousands of workers every day in coastal China’s industrial zone.

RFA: Workers Riot at Maersk Factory in Southern China

Mon dieu: French rally behind rogue trader

What can one say about this? I am as big a critic of global capitalism as you can find, but this left me speechless….

French rally behind rogue trader as fraud scandal spreads

Strange bedfellows

The leading global umbrella body, the International Trade Union Confederation, has decided to begin a “dialogue” with the Chinese government labor organization, the All China Federation of Trade Unions, or ACFTU. This is strange indeed. The ACFTU, as readers of this blog are well aware, is not a union but a government/party arm of the communist regime in China. It does not strike, it does not bargain for workers, it does not represent workers. Its explicit task is to prevent conflict rather than represent workers when they have issues with employers.

What possible gain could there be for global labor in such a relationship? Perhaps the gain will be free trips to China for union officials? But at what price for the credibility of the global union movement? If global unions view the ACFTU as a role model, then it sends a terrible signal about the independence and democracy of all unions.

There is one other aspect of this announcement that is deeply troubling: the American labor federation, the AFL-CIO, apparently abstained from the ITUC vote on the “dialogue” with China. This is a shift in their longstanding opposition to such a relationship. It is an unfortunate development.

Both the ITUC decision and the AFL-CIO abstention come just as a new labor movement is emerging in China: a genuine labor movement of Chinese workers themselves, rural and urban, who are gaining the strength and courage to challenge the authoritarian Chinese regime. This is the moment when unions everywhere – especially those in countries like the US where there are at least minimal democratic rights – should come out foursquare in support of this real labor movement. Instead global labor is moving to shake hands with the very oppressors of that labor movement.

ITUC to “Dialogue” with Chinese

Private Equity v. Labor: Debate Breaks Out at Davos

A fascinating debate over the concerns of labor about private equity funds took center stage at Davos this week. The link to the webcast is here: Labor v. PE

The debate between PE fund reps and a Swiss union leader is pretty fierce and interesting. The timing was perfect for the World Economic Forum because they issued today a report led by Harvard Business School professor Josh Lerner on the impact of PE funds.

The report can be found here: WEF PE Study

It is quite long so you can find an executive summary here: WEF PE Summary

The basic finding, after a study of 27,000 deals over thirty years, is perhaps not surprising: PE funds are better for everyone more or less. But the devil is in the details. The study does admit that jobs get cut when PE funds take over companies but argues that they get replaced by new so-called greenfield jobs. Sure, but at what wage rate?? That is the key.

My own view on this is set forth in the pages of latest Dissent Magazine. The online version is not yet available but you can order an issue here: Dissent

An earlier version of the article is available on line at PE and the new capitalist order

I argue that PE firms represent an evolution in the means by which capitalism extracts value from the labor force. It does not do this by financial manipulation but by much more intense pressure on the workforce and discipline of management. PE buyouts of public companies solve the agency problem that plagues the public company. This is not good news of course for labor and so it will be important for them to respond to the Lerner/WEF study.

China’s financial fragility is a political issue

I have predicted in the last year that China will face either a social or a financial crisis that threatens the regime sometime in the next few years. This piece by the prescient Minxin Pei and a colleague from the Carnegie Endowment for International Peace (where I spent a semester working on terrorism issues a while back) makes the important point that a financial crisis could trigger a political crisis.

They write:

...when it comes, a Chinese stock market crash will produce serious political consequences. Official figures show that more than 100m people have invested in equities, mostly during the recent bull market run. A massive sell-off will hit their household net worth. Because the Chinese government has been perceived as an active promoter of the country’s stock market, tens of millions of individual investors, members of the privileged urban middle-class, will direct their ire at the government. To make matters worse, most publicly listed companies are state-owned, so investors assume that the state is liable for the collapse of their share prices.

Of course their suggestion that reform from above can lead to a stronger capital market regime in China is misguided: the regime does not have that kind of dynamic built within it – it cannot allow a genuinely independent western-style capitalist class to emerge.

To regulate or not? That is THE question

Our friends over at naked capitalism brought this opinion piece from the FT to our attention. It is by the best known securities law professor in the country, John Coffee at Columbia Law School. He argues persuasively that despite all the post Sarbanes-Oxley panic, the US capital markets remain the most attractive around the globe. My view of this is pretty simple: in no other country do investors stand as good a chance at enforcing their legal rights than in the US. And investors continue to be willing to pay a “Rule of Law” premium to buy stocks here. That suggests the deregulation mantra sung by so many in the last few years ought to be softened considerably. With several seats open on the SEC perhaps it is time to elevate someone to that critical body who actually believes in what the SEC does!

FT.com ‘Regulation-lite’ belongs to a different age

The Perils of Private Equity

My article on private equity has been published by Dissent Magazine. You can order a copy here at dissentmagazine.org