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The United States District Court for the District of Connecticut issued a 30-page ruling on 5/5 regarding World Wrestling Entertainment's motion to dismiss the lawsuit brought against the company by former WWE and ECW wrestlers Marcus Bagwell and Scott Levy over allegedly owed royalties from usage of material featuring their matches on the WWE Network, dismissing some aspects of the lawsuit but allowing the majority to live on.
Bagwell initially sued on 8/9/16, alleging that he is owed royalties from usage of material featuring his matches on the WWE Network. Levy had once attempted to sue WWE over the independent contractor status that professional wrestlers under contract to the company are designated as, claiming they should instead be employees, several years back, but the lawsuit was dismissed. The pair are alleging that they are "have not received contractually owed royalty payments from World Wrestling Entertainment, Inc. (“WWE”) and/or WCW, Inc. (“WCW-WWE”) for certain content that has been sold or licensed by WWE or WCW-WWE on the World Wrestling Entertainment Network and for the nonpayment of all categories of royalties within 90 days following the end of the fiscal quarter." Bagwell and Levy claim that they are filing as a class lawsuit on behalf of similar performers, alleging that the class is owed in the area of $5 million.
The argument that the pair are using is that the WWE Network should be providing royalties to talents, based on their contracts, with the argument being that the Network has essentially has replaced DVD royalties and that the language of the contracts at the time Bagwell and Levy were used by WWE allowed them to receive a certain percentage from DVD royalties. WWE contracts also noted that the royalties would be included on "technology yet to be created." The argument is that the streaming technology used for the network falls under that description.
The lawsuit filing last year noted that the WWE Network grossed $159.4 million in 2015, but that in the case of Levy specifically, he is only being paid royalties on material that is sold on DVD even if it also appears on the Network - using the "True Story of Wrestlemania" and "Ladies and Gentlemen, My Name is Paul Heyman" as examples. It also cites that when Levy was released by WWE, the buyout involved noted that WWE no longer owed Levy, language from that agreement noted that WWE was buying out all of their obligations from the contract, with the exception of royalties that Levy would be owed going forward as determined by his contract.
CLAIMS AGAINST WCW, INC. ARE DISMISSED
In the lawsuit, Bagwell alleged that he was under contract to WWE* from 1991 to 2001 by virtue of his contracts with World Championship Wrestling and WWE purchasing WCW in March of 2001. In the lawsuit, Bagwell notes that his WCW** deal expired four days after the then-WWF purchased the company. When he was signed by WWE to a new deal in June 2001, Bagwell was signed under the WCW brand*** and name for his new contract, which was executed by WWE's Ed Kaufman. That deal only lasted two months as he was released in August 2001 following his disastrous June 2001 Raw main event against Booker T that pretty much sealed the fate on WCW being a separate brand under WWE ownership. ECW was introduced into the storyline shortly after that with the two companies merging into "The Alliance" before the storyline concluded with the destruction of that group in November 2001.
Bagwell has claimed that WWE and WWE's version of WCW were two separate corporations but while he was signed to the latter, he was only receiving checks and orders from WWE itself. The lawsuit noted, "The corporate veil of WWE should be pierced because WWE actively and pervasively controlled WCW-WWE and intermingled the activities of the two corporations engaged in the same enterprise, while disregarding the separate nature of the corporate entities."In the 5/5 ruling, Judge Janet Hall, who is presiding over the case, dismissed any claims against WCW, Inc., the company WWE created and signed talents under during the time period they intended to launch and operate World Championship Wrestling as a separate company from WWE in 2001 when they purchased WCW from Turner Broadcasting. Hall's decision was based on the idea that according to corporate paperwork for WCW, Inc. in the State of Delaware, where it was incorporated, it was officially merged into WWE's corporate company in August 2011. Therefore WCW, Inc. doesn't exist and cannot be sued.
Hall has ruled that if there were any liabilities found on WCW, Inc.'s end over the course of the case, WWE would be responsible for them as the surviving company in the merger. So, Bagwell can no longer sue WCW, Inc. as it doesn't exist and WWE has effectively replaced it.
COURT DOES NOT DISMISS ROYALTY ALLEGATIONS...AND SHOOTS DOWN WWE CLAIMS THAT THE NETWORK SUBSCRIPTIONS ARE NOT EQUAL TO VIDEO SALE
In their lawsuit, Bagwell and Levy alleged that WWE failed to pay them royalties within 90 days of the end of a financial quarter on numerous occasions. In the case of Bagwell, he even alleges he received royalties for the WWE Vengeance 2002 PPV, an event he did not appear on during a time period he was not even under contract to WWE.
Their lawsuit also acknowledges that WWE has successfully defended itself against similar claims from the Eddie Gilbert estate, former AWA star Doug "Somers" Somerson and former Global Wrestling Federation performer Stevie Ray (not to be confused with the WCW performer who used the same name) but stated that those talents had no contractual right to sue WWE. Bagwell has argued that due to the alleged breach of contract, he has that right, noting his lawsuit, "is not preempted by the Copyright Act because WWE owns the right to WCW copyrighted works featuring Plaintiff’s intellectual property, subject to royalty payment obligations for the sale of those copyrighted works (WCW Video Products of PPVs and Non PPVs)."'
In their lawsuit, Bagwell and Levy claimed they were owed royalties for WWE subscription sales of content they would be featured on. Bagwell also claimed that the WWE deal "merged" with aspects of his former WCW contractual terms, specifically the 1998 WCW deal that expired in March 2001. According to the 2016 lawsuit filing, the WWE contract stated, "This Agreement contains the entire understanding of the parties with respect to the subject matter hereof and all prior understandings, negotiations and agreements are merged into this Agreement. There are no other agreements, representations, or warranties not set forth herein with respect to the subject matter hereof. . ."
So, Bagwell was arguing that WWF are bound by his June 2001 WWE contract in regard to payment of royalties for PPV events and home video material. The lawsuit noted the following language from the contract that WWE has allegedly ignored. It should be noted that the language of WCW below pertains to the WWE-WCW version that existed as of the "Invasion" storyline in WWE.
On PPVs: "WCW shall allocate 5% of the Net Receipts paid to WCW with respect to the direct sale by WCW of WCW Pay-Per-Views to a talent royalty pool. Thereafter, WCW shall pro-rate payment to Plaintiff and all other talent appearing in such WCW Pay-Per-Views in the same proportion as was the compensation paid to Plaintiff for his appearances in the pay-per-views to the total amount paid to all talent for their appearances on the pay-per-views."
On Home Videos: "The WCW Video Product is a compilation or derivative work of multiple individual WCW Pay-Per-Views in their entirety, such as a collection of videos, e.g., a WrestleMania box set, payment to Plaintiff shall be calculated as follows: 5% of the Net Receipts paid to WCW shall comprise the talent royalty pool, which shall first be pro-rated based on the number of individual videos in the compilation, and then the payment to Plaintiff for each video shall be consistent with the royalty payment to the Plaintiff at the time each individual video was first released."
Noting that net receipts would be the gross amount received by WWE, Bagwell is calling into question money allegedly owed to him because the WWE Network, which streams those old WCW PPV events, grossed $154.9 million in the final quarter of 2015. Bagwell is also claiming he is owed money from the Network revenue because of language in his 2001 WWE contract that reads, “video cassettes, videodiscs, CD ROM, or other technology, including technology not yet created.” Again, the argument is that the streaming technology used for the network falls under that description.
The lawsuit claims that when WWE released Bagwell in August 2001, language from that agreement noted that WWE was buying out all of their obligations from the contract, with the exception of royalties that Bagwell would be owed going forward as determined by his contract. The language in the release also noted that Bagwell could not bring legal action against WWE as long as they maintained the terms of his Release agreement. Bagwell is now suing because he alleges WWE has now allegedly breached the agreement by not paying him royalties.
Bagwell had submitted a first quarter 2016 Royalty Statement sent to him by WWE showing that he was owed no royalties despite the WCW material being featured in the WWE Network's VOD section. What was interesting is that Bagwell acknowledges that under his 1998 WCW deal, he was owed no royalties for PPVs or videotapes. However, he is claiming he is now owed for that material as the WWE contract changed the language regarding that material. It also noted that he has received royalties for "NWO: Back in Black" on DVD, but not for the same material streaming via the WWE Network.
WWE has argued that a WWE Network subscription is not due a royalty payment to talent, arguing that unlike a DVD or a VHS tape, there was no sale of a physical copy of content to a consumer and that paid subscribers to the WWE Network were not buying content, but licensing the right to view it via their subscription. In her response to the motion, Judge Hall noted, "In any event, there can be little doubt that WWE is selling something to subscribers to the WWE Network. WWE understandably avoids using the word “sale”— or any variation thereof—in describing its interaction with WWE Network customers. Put colloquially, however, WWE sells subscriptions to the WWE Network, enabling subscribers to view content (both pay-per-view and non-pay-per-view videos) to which they would not otherwise have access. Nothing in the Booking Contract, copyright law, or any portion of Connecticut state law so limits the term “direct sale” as to unambiguously foreclose plaintiffs’ claims. That being the case, WWE’s arguments for dismissal that are grounded in the argument that “direct sale” does not—as a matter of law—cover the provision of streaming video on the WWE Network are not persuasive."
Hall also wrote that the court was "unpersuaded" by WWE's argument that WWE Network subscriptions did not fall under the category of "Video Products" as defined in a WWE Booking Contract. WWE is claiming that the term "technology yet created" refers to future physical content, i.e. if a new home video product was released (i.e. the creation of DVDs replacing VHS, etc.) not streaming technology. Hall wrote, "Similarly, WWE’s and the plaintiffs’ use of broad phraseology in defining technologies to be covered by the royalty provisions strongly suggests that, at the very least, there remains ambiguity as to whether streaming videos on the WWE Network qualifies as a Video Product." Hall also noted that while the Plaintiffs have claimed that the WWE Network is using the Internet to distribute "Video Products", WWE's language in their booking contracts does not provide a precise reason as to why that claim should be dismissed, noting that there is no mention of the Internet in the language of the contracts and that if that term had been included, "The contract would be nonsensical if “Internet” were included in Paragraph 7.5(a)’s definition of “Video Products,” as it does not appear there has yet been any effort by WWE to effectuate “direct sale[s]” of the Internet."
The court also noted that under the State Law of Connecticut, plaintiffs in lawsuits “will not construe a contract’s language in such a way that it would lead to an absurd result.” - something that WWE has argued would happen since there is no proper way of calculating royalties on material viewed via the WWE Network. Judge Hall, disagreed with the idea that the lawsuit would indeed "lead to an absurd amount", noting, "There are likely several plausible ways to calculate the royalty payments plaintiffs demand. For example, it might be that the proper way to perform the royalty calculation is to determine the number of times a specific video on the WWE Network is viewed as compared to the total number of video views, divide the gross sales derived from the WWE Network in that proportion, and create the talent royalty pool to be paid to the wrestlers appearing in the specific video from 5% of that value. To be clear, the court is not holding here that a particular method of calculating any royalty obligation on the part of WWE is the correct way, but rather offers a plausible method to show that plaintiffs’ interpretation of the Booking Contracts does not appear to render them unworkable."
The Judge also noted that due to the fact that WWE has in the past paid Bagwell royalties from materials that fall under what would have been the WCW, Inc. umbrella "plausibly suggest that WWE has some way of calculating royalties derived from WCWI works." WWE has claimed that Bagwell was paid "erroneously" at times in the past - obviously referencing at least the royalties paid to Bagwell for the 2002 Vengeance PPV, a show he didn't appear on and wasn't even under contract to WWE for.
Regarding whether WWE owed Bagwell royalties from his time under WWE contract for WCW material, the court noted that all agreed Bagwell was not owed anything from his WCW contracts, but that it is conceivable that Bagwell's 2001 deal with WWE could have created a "new entitlement to royalties" for the old WCW material. Judge Hall noted, "WWE has not directed the court’s attention to any provision of the Booking Contract that explicitly limits the royalty entitlement only to money derived from videos produced by WWE or WCW, Inc." She also wrote, "Notwithstanding the fact that plaintiffs’ original contract with WCWI did not pay them royalties, there is no reason WWE could not subsequently contract with plaintiffs to pay royalties on WCW videos, precisely as plaintiffs have alleged." So, WWE's attempts to dismiss that claim was denied.
COURT DOES NOT DISMISS WWE'S CLAIMS THAT BAGWELL AND RAVEN SHOULD NOT BE ALLOWED TO AUDIT WWE BOOKS
The 2016 lawsuit filing against WWE claimed that Bagwell's WWE contract allows for him to have his own independent certified accountant audit WWE-WCW's books, citing, "for the purpose of verifying the accuracy thereof, during WCW’s normal business hours and upon reasonable notice. Such audit shall be conducted in a manner that will not unreasonably interfere with WCW’s normal business operations. Wrestler shall not audit WCW’s books and records more than twice during any calendar year and no such audit shall be conducted later than one (1) year after the last statement of royalties is given, delivered or sent to Wrestler. Each audit is limited to seven (7) days in duration. Statements of royalties may be changed from time to time to reflect year-end adjustments, to correct clerical errors and for similar purposes."
According to the lawsuit, Bagwell attempted to do exactly that in June 2016 and was initially told an audit could be done in late July or early August 2016, only to later be informed by WWE's counsel, K&L Gates, that there would be no audit, as Bagwell's accountant, "asserted a pretextual and invalid audit request to attempt to stealthily obtain that information (WWE network royalty audit)" and that since Bagwell is not paid WWE Network royalties, "there is nothing to audit."
Since WWE blocked Bagwell's attempts to audit the records as he was contractually allowed to do, he is now claiming that the company has forfeited any claim that Bagwell did not satisfy any of WWE's prerequisite actions contractually before he filed his lawsuit. The lawsuit is also stating that it is an officially filed dispute of WWE's most recent royalty statement for Bagwell, per the language in his June 2001 WWE contract.
The lawsuit also noted that Levy did not even attempt to file a claim for an audit on his own, as Bagwell's experiences led him to believe that WWE would not allow anyone to audit the financials.
Judge Hall ruled that since it is not clear yet whether Bagwell is indeed owed royalties or not, it is impossible to rule out that he would be allowed to audit the company's financials in regard to whether those royalties have been properly paid out or not.
In regard to Levy, Hall wrote, "Levy’s suggestion that any request to audit the royalty records would be fruitless is convincing. To be sure, though WWE argues that Bagwell is not owed any royalties—and any royalties he has received are entirely in error —it does not make so broad an argument regarding Levy’s entitlement to royalties. While WWE clearly contends that Levy is not entitled to royalty payments from the WWE Network, it does not appear to dispute that his Booking Contract entitles him to some royalties, presumably from sales of WWE-produced content. Nevertheless, WWE’s position with respect to Bagwell’s audit request makes clear that it would not permit anyone to audit, at the very least, the portion of its books related to the WWE Network. Those records being the records relevant to the claims asserted in the FAC, the court is unpersuaded by WWE’s suggestion that Levy must make an attempt sure to be rejected."
COURT RULES WWE DOES NOT HAVE LIABILITY OVER ANYTHING DERIVED FROM TURNER-OWNED WCW ERA
WWE did get the court to side with them when it came to the idea that WWE would be financially responsible for any liabilities the court may find in regard to royalties owed to the talents from their time with World Championship Wrestling when WCW was under the Turner Broadcasting umbrella. Bagwell's lawsuit had alleged that as the company that purchased WCW, WWE also maintained any liabilities that came with the company.
WWE argued that the plaintiffs had not alleged that WCW owed them any royalty obligations not had they claimed any factual reasoning that would lead the court to make an exception to the idea that by purchasing WCW, WWE would be responsible for the "obligations of the corporation from which it made the purchase." The court ruled that any potential liability would be in regard to booking contracts signed with WWE or WCW, Inc. after WWE had purchased WCW. Hall wrote, "The fact that Bagwell had received some royalty payouts from WWE does not render plaintiffs' successor liability claims plausible, in the fact of a lack of any dispute that plaintiffs' WCWI contracts did not entitle them to royalties."
COURT ALLOWS ALLEGATION OF WWE'S 'BREACH OF FIDICUARY DUTY' TO MOVE FORWARD
Bagwell and Levy have alleged that WWE breached their fiduciary duty to them by not "honestly" accounting for the royalties they are owed. While WWE attempted to shoot that claim down, stating that the nature of the Booking Contracts the talents signed invalidated those claims. The court did not agree that the examples they presented were within line with Bagwell and Levy's allegations. Judge Hall wrote, "This is more than a “mere contractual relationship”: plaintiffs relied on the accuracy of the royalty statements they received from WWE, with little means of regularly verifying WWE’s compliance with the Booking Contracts."
WWE's attempts to get a claim that they allegedly violated Connecticut Unfair Trade Practices Act was also unsuccessful at this juncture.
COURT SHOOTS DOWN UNJUST ENRICHMENT CLAIM
In regard to a claim that WWE is unjustly enriching themselves from the content featuring Bagwell and Levy to move forward, WWE has claimed they own the copyrights on that material. WWE requested a dismissal of those claims, citing, "(1) because no claim for unjust enrichment may lie where there is an express contract between the parties that covers the same subject matter as the unjust enrichment claim; (2) because if there was no contract between the parties, plaintiffs are not otherwise entitled to royalties for the sale of copyrighted works; and (3) because plaintiffs incorporated allegations as to the enforceability and validity of an express contract between the parties, with which the unjust enrichment claim is legally inconsistent."
The court noted that the unjust enrichment claim was made by plaintiffs under the idea that should their other arguments not work, they may be entitled to a claim of unjust enrichment. The court claimed that that meant they were misconceiving the idea of what the meant, writing, "In this case, plaintiffs do not appear to dispute the existence, validity, and enforceability of their Booking Contracts. That being the case, plaintiffs have no claim for unjust enrichment for failure to pay royalties, even if the Booking Contracts do not contain a contractual right to royalties. So long as those contracts are valid and enforceable, an unjust enrichment claim aimed at the same subject matter is not cognizable."
So, that claim was thrown out.
Interesting to note, however, that elsewhere in Judge Hall's ruling, she noted, "Plaintiffs represent that their unjust enrichment claim “fall[s] outside the scope of copyright because the claim is not that WWE wrongfully distributed the videos; it is different, that WWE wrongfully retained monies not belonging to them by failing to pay WWE Network royalties to [p]plaintiffs and withholding royalty payments owed longer than 90 days following the end of the fiscal quarter.” Ultimately, however, the court need not and does not decide whether this unjust enrichment claim is preempted, as it is subject to dismissal on other grounds." So, until other aspects of the case, meaning the royalty issue, are worked out, it is impossible for the court to dismiss this claim."
WHAT HAPPENS NOW?
The court is allowing 14 days for Bagwell and Levy to file a second amended lawsuit and if they do, WWE will then get 14 days to respond. The court warned it will not allow any extensions on those deadlines.
ADDITIONAL BACKGROUND AND NOTES
The lawsuit Bagwell and Levy lawsuit was designed to set up a class action lawsuit for performers in a similar situation (noting a sub-class for talents who signed specific WWE deals in the past when the language in those contracts did not specifically mention the WWE Network material) , noting that exempt from the class would be those who have signed a WWE Legends deal from January 2004 on as language in those deals specifically notes that the company will not pay them royalties for "Internet subscriptions or video on demand fees." The lawsuit also requests the court prevent WWE from placing PPV and non-PPV material on the WWE Network until the class are paid royalties and that the class be paid within 90 days of the end of a financial quarter.
In April 2016, well prior to this lawsuit being filed, during an interview with the Two Man Power Trip podcast, WWE's lead counsel Jerry McDevitt commented on why talents from wrestling promotions who's video libraries are now owned by WWE are not owed royalties, stating, "Let me use ECW as an example. ECW if you recall your history went into Chapter 7 bankruptcy. Whenever you go into a Chapter 7 bankruptcy what happens is your assets and your liabilities are marshalled. The bankruptcy trustee tries to sell the assets of the bankruptcy estate to generate some cash to pay off creditors who would be for example any ECW talent that are owed money from ECW and would share any money that is available which is usually not very much because when you are bankrupt you don’t get very much and when somebody goes bankrupt like ECW does it essentially wipes out all the claims of anybody that they would have against ECW for contract royalties or contract claims against ECW. The assets of the company are put up for sale free and clear of all liens and that is part of the whole bankruptcy sale. When you think about it nobody is going to buy assets that carry with it liabilities. So what you had there was this entire film library of ECW that would have been sitting somewhere in a cardboard box right now and not being displayed anywhere, and the WWE decided it would buy and pay money to buy the films and the copyrights that go with those films and obtain from the bankruptcy court a bill of sale giving the WWE in exchange for the money we paid for those the sole right, title and interest to the copyrights of those works. That is why the WWE has the legal right to display them on the Network free and clear of any claims, plain and simple."
PWInsider.com received the following statement from McDevitt shortly after the initial lawsuit was filed by Bagwell in 2016: "Since the first purported class action case was brought on behalf of Billy Jack Haynes almost two years ago, this pack of class action lawyers have filed by my count 14 different complaints or amended complaints. All of them have been full of patently false allegations, and none of them have gone anywhere. They haven't got a penny, and the judge is in the process of deciding whether to throw other ones out. Bagwell's lawsuit is much the same. It is based on clearly false facts, and would embarrass a first year law student because of the ignorance of basic contract law principles. Bagwell was never promised a penny by anybody for the use of WCW archival footage. Not by Turner and not by WWE, and he knows it. Like I did before with [Rene] Dupree's bad faith lawsuit, I will be demanding they withdraw this latest suit next week. If they don't, we will move to dismiss, ask for sanctions, and seek to recover counsel fees from Bagwell."
Notes:
*: While the company was known as WWF at the time, we have listed it as WWE to make it easier for readers to follow the story.
**: All mentions of WCW denote the wrestling promotion owned by Turner Broadcasting. While describing WWE's version of WCW, we have listed it as WWE-WCW to dileniate between the Turner version and the WWE owned version.
***: While Bagwell's 2001 deal with WWE was listed as under WCW, we have listed it as WWE above to make it easier for readers to follow the story. The lone exceptions is language from the lawsuit, which has not been edited by PWInsider.com.
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