Warranty and Indemnification

INTRODUCTION

Most agents and entertainment lawyers are familiar with the MBA’s warranty and indemnification provisions. Many agents work with some parts of Article 28 on a regular basis. Even so, agents and lawyers have told Guild staff that the text is dense and convoluted, and remains somewhat of a mystery. Writers’ representatives continue to have disputes with Business Affairs departments over how to interpret and apply these provisions.

The goal of this Alert is to assist agents in working with the basic principles of Article 28, and to highlight language added in the 2001 negotiations that should help to clarify certain points. Real cases and controversies will generate more questions than can be answered here. Agents are encouraged to contact the Guild’s Contracts Department at (323) 782-4501 for more information and guidance.

THE BASICS OF ARTICLE 28

The warranty and indemnification provisions of the MBA are designed to protect screen and television writers when lawsuits are filed or threatened, and the claims asserted involve literary material and intellectual property rights. Perhaps the most fundamental protection is that the company must name or cover writers on its errors and omissions insurance policies. This obligation exists for all writers working under the MBA, whether they provide services directly to the company or through their own loan-out corporations. (Article 28.C., second paragraph)

If a third party sues the company or the writer, or informally presents a claim to either of them (usually a lawyer’s letter demanding redress for alleged wrongs), the company and the writer are required to promptly notify the other and share the details of the legal action or claim. Importantly, the company is prohibited from using the pendency of such an action or claim as an excuse to withhold payment from the writer. (Article 28.C., first paragraph.)

WARRANTY AND INDEMNIFICATION

Article 28 regulates various aspects of warranty and indemnification, both substantive and procedural. The article is complex because it imposes certain requirements in its own right, and it limits what companies and writers can agree on in their individual writing contracts. The regulations imposed by Article 28 may be divided into the following areas.

1. Permissible Types of Warranties

Individual contracts between writers and companies may include warranties of originality and no violation of the rights of third parties, and indemnification against judgments, damages, costs and expenses, including attorney’s fees, in connection with suits relating to the writer’s literary material or the use of the writer’s literary material. (Article 28.A., introductory sentence) Writers cannot be required by contract to waive their right to defend themselves against a company’s claim for costs, damages or losses arising out of settlements of claims, regardless of the type of document or form used to settle the case, when the writer has not consented to the settlement, unless the waiver is in a separate written document signed by the writer. (Article 28.A.1.) For example, a company would violate the MBA if it put such a waiver in the writer’s deal memo or buried it in a lengthy attachment of boilerplate "standard terms and conditions."

Companies cannot require writers to warrant or indemnify with respect to:

• Any claim that their literary material defamed or invaded the rights of privacy or publicity of any person or entity unless the writer knowingly used the name, likeness, characteristics or personality of such person or entity or should have known, in the exercise of reasonable prudence, that such person would or might claim that his or her name, likeness, characteristics or personality was used in such material;

• Any material other than that furnished by the writer;

• Third party defamation, invasion of privacy or publicity claims, when the company has requested the writer to prepare literary materials which are based in whole or in part on any actual individual, whether living or dead. In such cases, these limits for the benefit of writers are conditioned upon the writer’s obligation to provide accurate and complete information reasonably requested by the company for the purpose of permitting the company to evaluate the risks involved in the use of the writer’s material. In other words, when scripts use the lives of real people, the MBA strikes a balance between insulating the writer from potential liability and giving the company enough information to decide whether to go forward with the script as submitted.

(Article 28.A., numbered paragraphs 2-4)

2. The Actual Breach Requirement

New provisions in the 2001 MBA answer another knotty question that often arose in the negotiation of a writer’s contract: may a company demand that the writer indemnify it based on a third party's mere allegation that the writer breached a warranty? It is now clear that the answer is no. Any contract provision or proposal seeking to impose such strict liability is void and a violation of the MBA. A company may only seek indemnification based on an "actual breach" by the writer. In other words, the MBA doesn't permit a writer to be held strictly liable for third party claims, or for the costs of defending such claims, where the writer has not actually breached any warranty or duty. (Article 28.E)

3. Timing

The 2001 MBA also addresses the appropriate timing of a company’s effort to obtain indemnification from a writer. If a third party files a lawsuit or other legal claim, the company cannot seek indemnification from the writer while the claim is pending. (Article 28.E)

This does not mean, however, that the company has to go to trial in order to obtain indemnification from the writer. The company remains free to settle the litigation with the third party (98% of all lawsuits settle). The company may then seek indemnification from the writer in a separate case, either by filing an action in court or in arbitration if the individual writing agreement provides for it. (Article 28.F) In whatever forum, however, the writer may defeat the company's demand for indemnification by proving that he or she did not breach any warranty. Once again, the important point is this: a writer may only be liable for indemnification if he or she actually breached a warranty.

4. Indemnification by Company

The MBA also specifies circumstances in which companies are required to indemnify writers (in addition to including them in their insurance coverage, as mentioned earlier). At a minimum, companies must indemnify writers against damages, costs and expenses, including attorney’s fees, and relieve writers of all liability respecting

• material supplied by the company to the writer,

• material incorporated into the writer’s work by the company or any representative of the company (such as a producer not directly employed by the company),

• changes in the material made by the writer at the company’s request or direction, or

• any material not furnished by the writer to the company.

(Article 28.B.)

When the company is required by the MBA to indemnify a writer, the writer has an obligation to cooperate in defending against third party claims. The MBA states, however, that the writer cannot be required to incur any costs or expenses in doing so. (Article 28.D) For example, the company must pay the writer’s attorney’s fees and travel expenses incurred in giving testimony at, or simply attending, depositions and court hearings, and for the cost of copying documents from the writer’s files.

5. Drafting Concerns

What happens when a company drafts an individual contract containing one or more of the "forbidden" clauses?

Agents regularly report that Business Affairs has sent them a draft long-form contract containing a clause expressly prohibited by Article 28. The agent has objected, but Business Affairs stands firm. In these situations, the Guild advises that the agent make sure that the writer’s objection is in writing, including the position that the clause violates the MBA or is inconsistent with the MBA. At that point, with the writer’s consent, the Guild’s Contracts Department would contact Business Affairs to underscore the objection, answer questions, and explain that under federal labor law, such a clause would be considered null and void. If Business Affairs persists, we would explain Guild enforcement procedures available to protect the writer if the company tries to implement a contract provision prohibited by the MBA.

If a company does take steps to implement a clause in an individual contract that is inconsistent with Article 28, the writer or agent should immediately inform the Guild’s Contracts Department or a claims representative in the Legal Department so that an investigation may begin. Such cases are subject to final and binding arbitration under the MBA.