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$128M in Punitive Damages Reversed; Bones
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 A judge overturned a $128 million punitive damages award made by an arbitrator to the actors and producer of the TV show Bones in a dispute over profits.  Remaining in effect is a $50 million verdict for unpaid profit.  The term punitive damages refers to a sum of money awarded in a lawsuit in excess of the amount needed to compensate the plaintiff.  Such damages are used to punish the defendant for conduct that is not just wrong but also outrageous.

 

Bones is an American crime television series created for the Fox network.  It survived twelve seasons from 2005 to 2017.  A premise of the show is resolving federal legal cases by examining the human remains of murder victims. 

The series‘ stars and the executive producer commenced a lawsuit in 2015 against various Fox Broadcasting entities claiming tens of millions of dollars.  That money represents a portion of the profits that Fox should have made from selling reruns of the series to various Fox affiliates, including Hulu.   Per their contract with Fox, the actors are entitled to 3% of the series’ profits, and the producer, 5%.

 

The license fee charged by Fox to its affiliates was below-market rates.   This is called “vertical integration”, meaning a company’s production division licenses a show to the company’s affiliated distribution channel at an artificially discounted rate, resulting in a sweetheart deal (an agreement very favorable to a contracting party who has considerable influence).  Thus Fox Studio received little or no profits, and so  claimed no money was owed to the plaintiffs.  These types of lawsuits are not uncommon in Hollywood. 

 

Plaintiffs further alleged that Fox withheld important financial records that would have helped plaintiffs better calculate how much they were owed.  Further, when plaintiffs objected to these various practices, Fox’s response was described by the arbitrator as   “fraudulently threatening” to cancel the series.  Only when the plaintiffs exercised their audit rights (a clause in a contract that permits a party to access the other’s financial records relating to rights granted under the contract), did plaintiffs discover that their unpaid shares of the profits were very significant.

 

The claims in the lawsuit include: breach of contract (failing to perform a contractual obligation);  breach of the implied covenant of good faith and fair dealing (failing to act honestly and fairly when dealing with another contracting party); fraudulent inducement (persuading someone to enter a contract by using misleading information, trickery or deceit); and fraudulent concealment (deliberately hiding or suppressing information with an intention to deceive another contracting party).

 

Per the parties’ contract, the case was referred to an arbitrator whose decision awarded $179 million to the plaintiffs, and stated that Fox executives engaged in “intentional fraud and malice.”  The award included $128 million in punitive damages.   The written decision called the sum “reasonable and necessary to punish Fox for its reprehensible conduct and deter it from future wrongful conduct.”  As additional justification, the decision said Fox executives “appear to have given false testimony in an attempt to conceal their wrongful acts.”

 

The issue with the punitive damages apparently was not whether the network’s conduct was so bad as to merit the damages, but whether the plaintiffs in the contract had effectively waived the right to receive them.  The plaintiffs disagree with the court’s reversal concerning punitive damages  and intend to appeal.