POWER LAWYERS

by Paula Parisi

The ballroom of Hotel Casa Del Mar in Santa Monica looks like something out of F. Scott Fitzgerald's "The Great Gatsby." Ornate columns rise in the corners, framing the sunlight as it streams through double-height windows that reveal palm trees swaying in the breeze and, beyond that, the blue-green waters of the Pacific. Nearly 200 guests fill the room. Taking a break from the activities of the American Film Market next door, they chat amiably and queue up for luncheon delicacies at a buffet line as host Ken Kleinberg navigates the room. His firm, Kleinberg Lopez Lange Cuddy & Edell Llp., sponsors the annual event. Complimented on the proceeds, Bob Lange jibes, "We're lawyers -- if we didn't serve lunch, no one would come!"

The comment is as funny as it is true. Successful, smart and a vital part of the industry's support system, entertainment lawyers manage to be in the thick of things and remain in the background at the same time. With the exception of a few colorful litigators, they work anonymously.

But Tinseltown couldn't function without them. Entertainment companies employ hundreds of attorneys in their business and legal departments. The Beverly Hills Bar Assn. membership includes 1,250 entertainment attorneys, many of whom work for independent talent boutiques or large firms whose entertainment practices serve producers, writers and corporate clients.

What's all this lawyering going on here?

It breaks down pretty neatly into three categories: transactional work that keeps the production machine humming, litigation and multisource financing, which has come into its own during the past few years.

Among private-practice attorneys, the real power is concentrated among a few boutiques and large firms with heavy-hitting entertainment divisions. In addition, there are national firms that occasionally foray into entertainment on the institutional side.

"At the end of the day, if the money doesn't come through, or the talent is double-booked, we're the ones who get the call asking, 'What do we do?" says Bob Wallerstein of talent boutique Hirsch Wallerstein Hayum Matlof & Fishman. "We're dealing with the lawyers at the studios, the lawyers for the banks. And if we're doing our job properly, all of it is out of the public view."

Transactional boutiques

Transactional firms, which typically take 5% of their clients' incomes, represent talent across a wide spectrum of matters focusing largely on employment contracts with the studios and networks. These personal-services operations oversee all aspects of a client's needs, from tax advice to real estate purchases and audits, though such specialty work is often outsourced.

They'll supervise litigation, which, as a general rule, is not handled in-house -- unless, of course, one is working with Greenberg Glusker Fields Clayman Machtinger & Kinsella, where Bert Fields will be happy to negotiate one's deal and, if necessary, sue to enforce it. "I'm the only one I know of who does both," says the Harvard-educated Fields, who got his start doing court-martials in the Air Force.

Jim Jackoway of Jackoway Tyerman Wertheimer Austen Mandelbaum & Morris began his career as a Wall Street lawyer but segued to entertainment, which he found more interesting "because the clients looked to you for business and legal advice as well as career guidance, whereas in the corporate world, clients make the decisions, and lawyers draft the deals."

In addition to the above, Los Angeles-based blue-chip boutique power players include Jake Bloom of Bloom Hergott et al., Skip Brittenham of Ziffren Brittenham et al., Tom Hansen of Hansen Jacobson et al., Barry Hirsch of Hirsch Wallerstein and Bruce Ramer of Gang Tyre et al.

All are known for tough negotiating tactics when hammering out contracts with entertainment firms -- usually working as part of a team that includes agents and managers.

"Some studio lawyers make it a fight, and some don't. The key is to find some sort of common ground and not make it personal," Hirsch says.

"Pilot season is very intense," adds Deborah Klein of Barnes Morris Klein Mark & Yorn. "When a client gets an offer to be in a potential series, the offer might come in on a Tuesday, and they want to test Wednesday, so we have 24 hours -- sometimes less -- to get a contract done. Because the studios won't even test you without a deal in place."

Getting the best deal is an ever more complicated proposition amid the change that is endemic to this business. A few decades ago, entertainment transactors were drafting wills and filling out DMV paperwork, in addition to looking over contracts that ran a few pages. Now, a client can go from a "Schedule F" deal of $65,000 per feature film to a multimillion-dollar deal within two years, and contracts are voluminous things that hit the desk with a thud.

Contracts are highly nuanced and have long-term ramifications. The next deal is always contingent on the one that came before it. "God is in the details, and to suggest that the only thing relevant is a $10 million fee and X% of the backend ignores how the backend is defined and whether that percentage is worth real money or not," says one attorney speaking on background. "People talk about prebreak gross, but backend definitions can vary dramatically, even within the same studios."

Globalization has reshaped the financing landscape, and vertical integration and the consolidation of players has become the bane of transactional lawyers' existence.

"The studios are getting more difficult because there are fewer buyers, and the policies are becoming more stringent," observes one talent attorney, speaking on condition of anonymity. "There's less money available for nonstar players. By stars, I mean big-time directors, actors and writers are not having to cut their fees."

"It's the old follow the money," says Jon Moonves of Del, Shaw, Moonves, Tanaka & Finkelstein. "A lot of the old (revenue) streams are drying up, or studios are trying to figure out ways to keep more of those monies. You've got to figure out ways to tap into the new streams of income, current and future." To that end, things such as branded entertainment and digital rights have become huge areas of interest. "We're putting it in already that you can't digitize without permission," Fields says.

"We don't reinvent the wheel each time, but there are different spokes," Hirsch says. "Yes, it serves the studios to try to stick to their standard contracts, but there are always exceptions, and the art is finding what those are."

Litigation

Not every attorney can litigate, and as a general rule, those that can't secretly wish they could. "It's sort of like in (1981's) 'Chariots of Fire,' where the coach says, 'I can't put in what God left out,'" says Alschuler Grossman Stein & Kahan's Larry Stein, who is currently representing Peter Jackson in a suit alleging underpayment by New Line for the "Lord of the Rings" trilogy. "You have to be a bit of a warrior, willing to tilt at windmills and fight the good fight."

Broadly speaking, litigation firms fall into two camps: those that specialize in suing on behalf of talent, and those that represent the studios. On the talent side, Fields and Stein are known for their smooth approach; Marty Singer of Lavely & Singer; Patricia Glaser of Christensen, Miller, Fink, Jacobs, Glaser, Weil & Shapiro; and Peter Parcher of Manatt, Phelps & Phillips have built reputations on a no-holds-barred style.

Among the firms representing entertainment companies, O'Melveny & Myers, Katten Muchin Rosenman, Sheppard Mullin Richter & Hampton and Mitchell Silberg & Knupp are names that frequently come up. "You can't really do both -- it's hard to turn around and sue the studios who are your clients," one lawyer at a large firm says. Although again, Fields regularly switches sides and says many of his current litigation clients, including Revolution Pictures and Bob and Harvey Weinstein, started out as opposing parties.

Entertainment litigation requires thorough knowledge of intellectual-property rights, film financing, guild practices and employment contracts, as well as the political landscape of Hollywood. "Whether they're studio clients or talent clients, they want lawyers that can talk to them in their language," says O'Melveny & Myers head of entertainment litigation Robert Schwartz, who was front and center on the recent Grokster case (coming up with the "inducement" argument that resulted in a favorable outcome for the studios before the Supreme Court). Schwartz is representing New Line against Jackson's claims.

Few conflicts actually see the light of a courtroom. Many are handled with threatening letters and resolved before a suit is filed.

"It's a relationship business," one top-tier litigation lawyer says. "At the end of a certain amount of fighting and fatigue, people say, 'We want to work again another day, so let's settle this.'"

While most would agree it's nice to settle cases, "there are some cases that cannot be settled because of the nature of the claims and the fact that it would affect the industry if we were to capitulate," says Sheppard Mullin head of litigation Marty Katz. Katz just scored a win for the Walt Disney Co. and the industry by successfully arguing that the value of promotional deals -- like the agreement McDonald's has with Disney -- does not constitute "gross receipts" as the industry knows them.

Four years of discovery culminated in a 15-week trial. "It's hard to believe this justified all that trouble, but when you think about how long the line of new plaintiffs would be if we lost, you can see why every studio was watching this case," Katz says.

Business to business

Large firms with entertainment practices have made diversity a virtue, boasting departments that specialize in transactional law, litigation, music, advertising and intellectual property.

"If I have a question, chances are there are guys down the hall who can answer it," says Loeb & Loeb's Craig Emanuel, one of the few attorneys who represent talent within the context of a larger firm. "We have a division that's doing major work in tax research overseas; you may not need all these things, but if you do, you can get all your information here and not have to go to outside counsel for advice."

Some firms have even become matchmakers between entertainment projects and financiers. Akin Gump Strauss Hauer & Feld, for example, represents banks including Comerica and JPMorgan. "Clients want access, and a firm like ours has access at a very high level," Akin Gump's John Burke says.

With their superior knowledge of financial players, such firms can raise red flags about the viability of potential investors, saving time and keeping projects on track.

"When you're raising independent financing, everything is dependent on everything else, and the pieces fall into place just so," says Fred Bernstein, co-chairman of Manatt Phelps' entertainment, advertising and media practice and a former Columbia TriStar executive. "While we're arranging the pieces, the picture is coming together like a freight train -- (and) a false move can derail you."

Adds Sheppard Mullin head of transactional law Bob Darwell, who in addition to overseeing deals like Lions Gate's 2003 acquisition of Artisan handles production legal work and international financing, "Pictures come together in a far more complicated way than ever before."

Darwell says the package he assembled to fund Lions Gate's upcoming Nicolas Cage starrer "Lord of War" -- involving a German film fund, two French equity sources, a loan from Citibank and bridge financing from Endgame -- is not atypical.

"People are going to continue to look for alternate sources of money to allocate the risk," he says. "A new thing I see coming is people looking for opportunities to find alternative financing for their (prints and advertising)."

As the market changes, so are the top entertainment law practices.

"We're involved in music, publishing (and) Web simulcasting," says Emanuel, who is working with agencies to help brands navigate the entertainment waters. "The reality is, the communities who spend dollars today aren't spending as much time watching television and going to the movies as they used to -- they're online playing games (and) doing other things -- so finding ways to reach out to them is a challenge."

Bernstein has built a major branded-entertainment practice at Manatt, including attorneys in Los Angeles and New York.

"A lawyer who is well-placed and has a broad practice sees every kind of transaction," Kleinberg says. "If you do (only) one thing, you don't necessarily know what the market is for the broader spectrum of deals."

According to Jackoway Tyerman's Karl Austen, the bottom line is, "If you're a real player -- someone with backend participation and clout -- you're going to want someone with a broad range of experience as your counselor -- your consigliere -- because in a couple of little details, there can be millions of dollars."