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IP/Entertainment Case Law Updates

Kirkman v. AMC Film Holdings LLC

Ahead of jury trial on claims by executive producers of The Walking Dead and Fear the Walking Dead television series of breach of contract for contingent payments by AMC, court holds, on seven contractual interpretation issues, in favor of AMC. 

Robert Kirkman, creator of The Walking Dead comic books and executive producer, along with David Alpert and Gale Anne Hurd, of The Walking Dead and Fear the Walking Dead television series, sued AMC Network and related entities for breach of contract, alleging they had been underpaid from revenues derived from the two shows and the spinoff Talking Dead because AMC was taking advantage of its position as both the production company and the network broadcasting the episodes. Ahead of a full jury trial on the breach of contract claims, the court sought to narrow the issues presented to the jury by conducting a bench trial on key provisions of the parties’ contracts related to AMC’s calculation and payment of contingent compensation.

In each of their contracts, plaintiffs agreed that contingent compensation would be calculated as a percentage of the shows’ modified adjusted gross receipts (MAGR), a pool of certain associated revenues less certain expenses. Each plaintiff then negotiated the inclusion of certain terms regarding what AMC could use to calculate MAGR under his or her contract. As AMC had not, at the time of the signing of those contracts, defined MAGR, the producers brought this action to challenge AMC’s definition, arguing that it was unfair and unreasonable to find they agreed to be bound by an MAGR definition they had not seen or negotiated. Specifically, the producers challenged the MAGR definition used to calculate compensation in connection with AMC’s initial exhibition of the shows on AMC’s own channel, which included an imputed license fee or “set amount of money added to the MAGR pool for each episode” created and aired. 

The court disagreed, finding that each contract was unambiguous, and holding that the “shall be defined” language agreed to by the parties in their contracts unambiguously gave AMC the sole right to define MAGR as it saw fit, subject only to the specifically included terms negotiated for in each contract. 

The court reasoned that the plain language of the agreements resolved this “threshold and controlling issue.” The court noted that plaintiffs were represented by sophisticated entertainment industry counsel and were able to protect themselves from AMC’s MAGR definition by specifically negotiating the inclusion or exclusion of certain items from the MAGR calculation for their contingent compensation. The court concluded the producers “could have avoided being bound by AMC’s MAGR definition by not agreeing that it ‘shall’ control … [b]ut they did agree to that language, and they cannot be released from the clear bargain they made years ago.” The court also found as persuasive, and as intent by the producers to be bound by AMC’s definition, that the producers bargained for and received the protection of a most-favored-nation provision, ensuring they would receive the benefit of any more favorable MAGR terms obtained by any other The Walking Dead profit participant in the future. 

In addition, the court concluded that applying plaintiffs’ interpretation would render the contracts meaningless and unenforceable. Specifically, the court rejected plaintiffs’ argument that “shall be defined” meant only that the parties had agreed to negotiate the balance of the MAGR terms at some unspecified future date. The court held that the calculation of MAGR was a material term of the producers’ individual contracts and that plaintiffs’ proffered interpretation of an “agreement to agree” would render the agreements, and the producers’ own claims, unenforceable. Even if AMC’s MAGR definition didn’t explicitly control under the contracts, the court declined plaintiffs’ invitation to create a new MAGR definition or impute a fair market value requirement where the parties hadn’t, but easily could have, expressly provided for them. 

Finally, the court also found as persuasive, as to intent, that plaintiffs’ course of performance under the contracts confirmed their intent to be bound by AMC’s MAGR definition. Specifically, plaintiffs each waited at least a year to file any objection to the definition, and repeatedly accepted benefits under AMC’s MAGR definition. 

Moving on to what it characterized as secondary issues, the court held that, contrary to plaintiffs’ argument, the producers’ The Walking Dead contracts did not require AMC Network to pay an “actual license fee” to its wholly owned production subsidiary, AMC Film Holdings, LLC, for the right to exhibit the show. The court found that the parties’ course of dealing for years, and the individual producers’ failure to ever object prior to litigation, demonstrated acquiescence and acceptance of the use of an imputed, rather than an actual, license fee. The court also upheld AMC’s calculation of imputed license fees as a percentage of the shows’ production budgets and held that the parties’ Fear the Walking Dead agreements did not implicitly incorporate the most-favored-nation clauses that plaintiffs negotiated for and expressly received in their The Walking Dead agreements. Lastly, the court concluded that Kirkman, Alpert and Hurd were not entitled to any contingent compensation in connection with the spinoff Talking Dead. The court reasoned, on the one hand, that the producers’ Talking Dead agreements contained no express contingent compensation provisions whatsoever and, on the other hand, that “First Negotiation” provisions in their The Walking Dead contracts did not apply to the low-budget talk show format. 

Summary prepared by Linna Chen and Jordan Meddy