March 20th, 2012

Hollywood Reporter, Esq.

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‘Scare Tactics’ Producer Sues to End Distribution Deal

WMTI Productions, producers of the Syfy reality show Scare Tactics, has filed both arbitration claims and a separate lawsuit against Rive Gauche Television, which is responsible for licensing and exploiting the show worldwide.

The show, which has been hosted in different seasons by Shannen Doherty, Stephen Baldwin and Tracy Morgan, and features individuals being pranked on hidden cameras by horror movie-style set-ups, is now the subject of a dispute over an alleged concealment of income, deduction of foreign taxes and whether the show has been properly exploited around the world. The plaintiffs are seeking damages for breaches of contract and also looking for a declaration that a licensing agreement between the parties is now terminated.

The TV series has been running since 2002. That year, WMTI entered into a licensing agreement with Rive Gauche to distribute the show in non-U.S. markets. The deal was renewed in 2006, and then again in 2008 and 2010.

As part of the first deal, Rive Gauche got 20 percent of “gross receipts” and was permitted to recoup expenses in addition to its distribution fee, up to 3.5 percent of receipts,  according to the suit. In 2006, the Rive Gauche’s commission for distributing the series around the world was bumped up to 30 percent.

But WMTI says it discovered in late 2009 that Rive Gauche was taking fees based on a pre-tax estimate of the value of distributing Scare Tactics.

“Though the 2006 Agreement does not expressly define ‘gross receipts,’ under no reasonable interpretation of the term ‘gross receipts’ could Defendants expect to add the estimated value of taxes on the income generated by the distribution of Scare Tactics to the actual receipts therefrom, in order to assess its fees,” says a complaint filed in LA Superior Court on Friday.

The prospect of its distributor recouping foreign taxes has compelled WMTI to file the lawsuit. Additionally, the production company says that the defendant has failed to submit to an accounting to flesh out allegedly concealed funds and wants a judge to declare that the distribution agreement terminates automatically on March 20, 2012. That’s today.

The lawsuit was filed in state court because Rive Gauche has allegedly refused to permit arbitration of the 2006 Agreement.

Last month, WMTI also submitted claims against Rive Gauche with the American Arbitration Association that sought to punish the defendant for allegedly breaching its contract by failing to provide accountings, failing to inform WMTI of every deal entered, failing to pay all money owed, and failing to use its best efforts to exploit Scare Tactics in the licensed territories.

The production company, represented by Devin McRae at Early Sullivan Wright, is demanding the end to its distribution agreements and a return of all 84 episodes of the series in various versions.

Rive Gauch CFO Jay Behling has given us a statement in response:

“We don’t normally comment about legal matters, however these claims are without merit and will be proven as such.  As our company prepares for its 20th anniversary, we are proud of our long commitment to integrity and best practices across all levels of our business associations and partnerships.  We therefore do not take these accusations lightly.  They conducted an audit in 2009 and no issues resulted from it.  Without any basis for their claims, it appears they are trying to use Scare Tactics to make their case.”

Source: Eriq Gardner, Hollywood Reporter, Esq.