Richard Dreyfuss Takes Disney To Court Over Its Refusal To Allow An Outside Auditor To Examine Its Accounting Methods
from the Hooray-for-Hollywood-(accounting)! dept
It takes a lot of skill to turn hugely-profitable films into net losers, and Hollywood studios have it down to an art form -- one that's often more creative than their sanitized retreads and ultra-safe franchises and reboots.
Lucasfilms, now owned by Disney, produced several Star Wars films, amassing billions of dollars. But the actor who played Darth Vader has never received any residuals from The Return of the Jedi, which was the 15th highest-grossing film of all time as of 2012. Low-budget hit The Exorcism of Emily Rose grossed $150 million on a $19 million budget. And yet, its director has yet to see a cent of his residuals, which were supposedly 5% of the net profit. Somehow $131 million just… vanished.
No matter how much is exposed about Hollywood's complete bullshit it calls an accounting process, it will seemingly never stop screwing over everyone but the studios themselves. It's apparently far more profitable to simply weather the criticism and occasional lawsuit.
Speaking of the latter, Richard Dreyfuss has just filed a lawsuit against Disney over missing What About Bob? residuals. His co-complainant, Christine Wagner, is the widow of the producer of Turner & Hooch. Both have a problem with the way studios do math. Both tried to bring in a third-party to take a look at Disney's books, and both were shot down by the studio. (h/t to Techdirt reader techflaws)
According to a complaint filed on Thursday in LA Superior Court, Disney has refused a demand by Dreyfuss and Wagner to hire their chosen auditor — Robinson Inc., founded by David J. Robinson.The allegations are harsh, but also unsurprising.
In a potentially watershed case from attorney Neville Johnson, the complaint lays out how profit participation auditors are called upon to find monies due to profit participants and how studios are "make auditing as onerous as possible."
Studios make auditing as onerous as possible. For example, they make the auditors sign strict confidentiality agreements before auditing commences in order to ensure that, if wrongdoing has occurred, others will not find out. Even more egregious, when errors are discovered with respect to a property, the Studios do not correct the error retroactively or going forward for other profit participants on the same property. Additionally, Studios intentionally understaff the audit departments so that audits can take many years to be scheduled, and then to complete. On information and belief there is currently a three-year queue to audit Disney, which is inexcusable and outrageous.Dreyfuss and Wagner allege that studios often attempt to deter those seeking unpaid residuals with threats of blackballing and forcing them into restrictive confidentiality agreements and binding arbitration. The lawsuit also alleges that Disney's refusal to recognize Robinson's firm as qualified to perform an audit is based simply on its unwillingness to be audited by a firm it can't control, rather than any lack of experience on Robinson's part. The filing points out that Robinson has performed this service for a number of other movie and TV studios (including some of Disney's television partners), in addition to serving as Director of Finance for both NBCUniversal and Warner Bros. He has also previously audited Disney.
Both parties allege that Disney is contractually obligated to allow them to audit the studio's records related to the two movies, but that the studio has abused its "final say" power to limit audits to auditors it prefers, rather than those chosen by the plaintiffs.
This should certainly prove interesting if Disney is forced to make its auditing procedures public. But there's only a slim chance that will happen. The dark calculus of Hollywood accounting is more closely-guarded than law enforcement methods and capabilities. If the plaintiffs manage to secure the court-ordered (and court-supervised) auditing they're requesting, it will likely be met with settlement offers, rather than the "outing" of the studio's perverse number massaging.