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OCTOBER 24, 2013

Entertainment lawyers are not above the law

By Michael Garfinkel

The California labor commissioner recently issued a decision confirming what manyentertainment attorneys feared: When it comes to the Talent Agencies Act, attorneys arenot above the law. The act prohibits unlicensed "persons" from engaging in talent agentactivities. Personal managers know all too well that violating the act can invalidate theirclient contracts and require disgorgement of commissions. Entertainment attorneyshave watched from the sidelines, assuming that they were protected by an unwrittenexemption. The labor commissioner has now made clear that they are not. While thedecision has been appealed to Los Angeles County Superior Court, attorneys should takeheed.

The Talent Agencies Act's purpose is to protect artists seeking professional employment from abuses. Thelabor commissioner is responsible for enforcing the act and has original jurisdiction over any disputes. Theact establishes detailed requirements for how licensed talent agencies conduct their business, including pre-approval of all forms of client contracts, posting of fee schedules, maintenance of trust accounts, thoroughbackground checks, and posting of a bond. Under the act, only licensed talent agents may procure or attemptto procure employment for artists. It is long-settled that a violation of the act by an unlicensed personrenders his contract with the artist illegal and void. Styne v. Stevens, 26 Cal. 4th 42, 51 (2001).

In 1982, in response to complaints primarily from personal managers, the Legislature formed the CaliforniaEntertainment Commission to study the act. The commission was comprised of the labor commissioner,artists, talent agents and personal managers. In 1985, the commission issued its report containingrecommendations for improving the act. The Legislature adopted all of the committee's recommendationsand amended the act to impose a one-year statute of limitations, eliminate criminal sanctions for violationsof the act, and establish a "safe harbor" for managers "to act in conjunction with, and at the request of, alicensed talent agency in the negotiation of an employment contract." Labor Code Section 1700.44. TheLegislature agreed with the commission and rejected alternatives that would have allowed unlicensedpersons to engage in limited procurement activities, concluding that the act's prohibitions on unlicensedprocurement must remain, as they are intended to be, total and without exception. "There can be no'sometimes' talent agent, just as there can be no 'sometimes' professional in any other licensed field ofendeavor." Entertainment Commission Report, pp. 11-12.

Thereafter, the act was increasingly asserted by artists to defeat commission claims brought by personalmanagers. In a typical scenario, the artist and manager had a falling out, leading the manager to file a lawsuitfor post-termination commissions. In defense, the artist asserted the act, alleging that the personalmanager's procurement of engagements without the involvement of a talent agent constituted prohibitedunlicensed procurement. The artist then filed a petition to determine controversy to be determined by thelabor commissioner, while staying the personal manager's lawsuit.

If the labor commissioner found any procurement activities, including sending the artist to an audition for arole he did not get, she deemed the agreement between the artist and personal manager void ab initio, notonly barring the personal manager from recovering any further commissions but also compelling him todisgorge any commissions collected within the one-year statute of limitations. Under the act, suchdeterminations are appealable to the superior court for a de novo review. However, once the artist wasarmed with evidence of illegal procurement, typically the case settled or the superior court reached the sameconclusion. While the outcome may seem a bit harsh or unfair, the result was often justified by the equitiesinvolved and had the intended deterrent effect.

Over the years, the act has repeatedly survived constitutional attacks unscathed. However, years ofcoordinated personal manager attacks finally paid off in part in Marathon v. Blasi, 42 Cal. 4th 974 (2008).While the state Supreme Court again upheld the constitutionality of the act and its application to unlicensedpersonal managers, it for the first time sanctioned the doctrine of severability as a defense - "For thepersonal manager who truly acts as a personal manager, however, an isolated instance of procurement doesnot automatically bar recovery for services that could lawfully be provided without a license."

The doctrine's application addressed the seemingly most unfair situation where the personal manager loseshis commissions on employment lawfully obtained based upon another incidental procurement activity, suchas booking the artist for an unrelated promotional appearance. However, the Supreme Court also made clearthat there are instances where the doctrine cannot be applied, such as where the illegal procurementactivities are inseparable from the managerial services. "The doctrine is equitable and fact specific, and itsapplication is appropriately directed to the sound discretion of the Labor Commissioner and trial courts inthe first instance."

The Marathon court was not faced with, and did not specifically address, whether the act equally applies to

10/25/13 12:10 PMDaily Journal

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The Marathon court was not faced with, and did not specifically address, whether the act equally applies toattorneys. While there is no known labor commissioner decision on the issue, she has uniformly held that theact prohibits any "person" from engaging in unlicensed procurement activities and has previously held thatthe safe harbor cannot be invoked based upon the manager's collaboration with a transactional attorney. OnSept. 30, 2013, the labor commissioner went one step further, rejecting the notion of an attorney exemptionin Solis v. Blancarte.

Mario Solis is a local Los Angeles sports reporter and news anchor on KNBC. He brought the KNBCopportunity to his attorney and sometime manager, James E. Blancarte. Solis did not have an agent andinstead engaged Blancarte to negotiate several successive KNBC employment contracts. Blancarte filed alawsuit to recover commissions from Solis, and Solis countered by filing a petition to have the laborcommissioner determine their agreement to be unenforceable due to violations of the act.

In her decision, the labor commissioner concluded that there is no attorney exemption. Consistent with priordecisions, the labor commissioner held that "procurement" includes the process of negotiating an agreementfor the artist's services, even if those services were performed by a licensed attorney. Since Blancartenegotiated the KNBC agreements, and it was the KNBC commissions at issue, the doctrine of severability wasof no help to him. Since Solis did not have an agent and Blancarte acted alone in the negotiations, the safeharbor provision was also unavailable.

Blancarte has appealed. While the superior court is entitled to review the matter de novo, the laborcommissioner's "interpretation of the statute he is charged with enforcing deserves great weight." Styne v.Stevens, 26 Cal. 4th at 52-53. If the superior court reaches the same conclusion, expect the matter to beappealed to the 2nd District Court of Appeal, and maybe even to the state Supreme Court. In the meantime,entertainment attorneys should take note that in the labor commissioner's eyes, they are no different thanpersonal managers.

Since the entertainment attorney presumably will have some hand in negotiating each and everyemployment agreement for his artist, the doctrine of severability will not be of much use. Like personalmanagers, some attorneys will likely consider and decide against becoming a licensed talent agent because itwould subject them to the jurisdiction of the labor commissioner and the various guilds (AFTRA, DGA,WGA), and require compliance with myriad requirements and restrictions.

Therefore, the best way for an entertainment attorney to protect himself or herself is to avail themselves ofthe safe harbor, that is, working in conjunction with, and at the request of, a licensed talent agent. In severalpre-Marathon decisions, the labor commissioner has taken the position that the talent agent must make arequest to the attorney "each and every time" a negotiation occurs. A "blanket understanding" with the talentagent is insufficient to shield the manager. Unless and until there is a California appellate decision to thecontrary, the labor commissioner's rules should be followed.The Solis decision is important because it flatly rejects the commonly held belief that attorneys are somehowexempt from the act. While you may not like it, the labor commissioner's interpretation of the act is notsurprising and will be given great deference. Unless and until the act is amended to add an attorneyexemption, or there is binding authority to the contrary, the best practice is work with a talent agent andavail yourself of the act's safe harbor.

Michael Garfinkel is a partner in Perkins Coie LLP's Los Angeles office and Chair of its Media &Entertainment Litigation Practice Group. He has a broad commercial litigation practice with particularexperience in entertainment, intellectual property, defamation and class action defense. Michael can becontacted at mgarfinkel@perkinscoie.com.