De Havilland lawsuit resonates through Hollywood

LOS ANGELES (Hollywood Reporter, ESQ.) - If newly emancipated Hollywood talent agent Ed Limato brings his exclusive Oscar party to his new home at the William Morris Agency, he should reserve a spot for an unlikely guest of honor: 91-year-old actress Olivia de Havilland.

Sixty-four years ago Thursday, de Havilland and her lawyers filed the lawsuit that led to the “seven-year rule” for personal services contracts, helping bring down the old studio system and bestowing unprecedented power on talent and, ironically, agencies like the one Limato successfully sued to escape.

California’s seven-year rule, also known as Labor Code Section 2855, is such an accepted tenet of entertainment law that it’s hard to imagine the business before it existed. De Havilland, who received her first Academy Award nomination for 1939’s “Gone With the Wind” and went on to win best actress twice, sued Warner Bros. when the studio repeatedly extended her contract after “suspending” her for rejecting the roles it suggested. It was an uphill battle (Bette Davis lost a similar case in the 1930s), but the California Court of Appeal ruled in 1944 that de Havilland was not bound to perform services beyond seven years from the start of her contract. The case became state law, significantly shifting negotiation power from studios to talent and allowing agents like MCA’s Lew Wasserman to usher in the era of top-dollar star salaries and the commissions and packaging fees that can make agenting such a lucrative business.

Today, film and television lawyers say the seven-year rule is such a given in negotiations that serious disputes rarely arise. Still, the law remains a sharp arrow in the quiver of disgruntled talent, especially in the music industry, where such artists as Courtney Love and Smashing Pumpkins have cited the rule in challenging open-ended deals that require delivery of several albums (though the record labels lobbied for and received a de facto exception allowing them to recover damages from artists for undelivered albums on deals voided by the rule).

The Limato arbitration brought the seven-year rule full circle. During his 32-year, two-stint association with International Creative Management, Limato had made superstars of such free-agent clients as Denzel Washington, Mel Gibson and Steve Martin. Limato’s own deal, ICM argued, was different than de Havilland’s contract with Warners because Limato could have left but chose to renegotiate and amend his agreement several times since 1996, most recently in 2006. That deal ended in June and provided for a three-year “consultancy” and a promise not to compete with ICM during that time. Did the renegotiations restart the seven-year clock? Relying in part on a recent case involving boxer Oscar De La Hoya, veteran entertainment arbitrator Diane Wayne said no, freeing Limato and, adding insult to injury, requiring ICM to pay his attorneys’ fees.

“They had locked Ed up and thought they had done it in a way that skirted the rule,” says Limato’s lead litigator, George Hedges. “I think every (agency) is taking a beat now, looking at their practices.”

Hedges says the Limato case shows the seven-year rule lurks anywhere in the business where talent -- be they actors, directors, agents or executives -- sign successive options to perform unique services without a reasonable window of time between deals. That’s reason enough for nervous business affairs executives to double-check their deal files.

De Havilland now lives in France and hasn’t acted since 1988. But her efforts more than six decades ago resonate today.

Reuters/Hollywood Reporter