Tax Issues Get the Spotlight in Entertainment Settlements

With its unlikely plotlines, beautiful faces and glamorous red carpet premieres, the entertainment industry offers an escape from the everyday.

But when it comes to settling disputes unique to Hollywood, there’s no escaping the reality that even the most basic tax issues must be considered every time cash or intellectual property changes hands.

JAMS mediator and arbitrator Joel Grossman—a former in-house studio attorney—and prominent tax lawyer Robert Wood of Wood & Porter recently co-authored an article for Westlaw Journal explaining the tax implications stemming from the settlement of several types of show business disputes.

“Laying the groundwork should start early,” Grossman and Wood wrote. “It is clearly better to deal with tax issues at the time the other issues are being resolved so that the parties end the mediation with a binding and enforceable agreement.”

When a person claims that a studio made a film or television show substantially similar to his or her own work, a settlement can involve intellectual property recoveries that can be categorized as capital gains and taxed at 15 percent, lower than the 35 percent tax on income.

In disputes over profit participation situations—where an actor, writer or director gets a share of the profits from a film or television show rather than all in an upfront payment—the difference between paying a settlement to a person or their production company can have different tax implications.

So does the timing of a settlement payment. Money put toward a participant’s share can sometimes push the person closer to receiving his or her share of a work’s profits, but not translate into an immediate payment. Often, these types of settlement payments are tax-neutral, but will affect taxes on future gains.

As part of a settlement in a profit participation case, a defendant may also pay what’s known as a “gross up” to help cover future taxes the plaintiff will face, but the gross up itself is often subject to taxation.

At JAMS, we’re making sure that parties involved in entertainment industry disputes understand these tax implications early in order to reach quick and cost-effective settlements.

Effective Advocacy in Arbitrations

The demands on outside counsel to find innovative and cost-effective solutions for their clients’ legal needs has risen in light of increased scrutiny towards litigation and arbitration. Clients in turn face increased pressure from their business units to manage legal spending and assess litigation risk.

During the recent JAMS National Arbitration Week, one of our Financial Markets panelists, Mark E. Segall, moderated a panel, which delved into some of these issuesFeaturing plaintiffs’ and defense attorneys, the panel explored techniques and approaches attorneys could employ in arbitration to efficiently resolve financial markets disputes.

On the issue of dispositive motions, the panel looked at the extent to which motions during arbitration can be used to create cost-efficiencies for the parties.

“Lawyers on both sides of the aisle said that motions addressing issues such as statutes of limitations or choice of law can often help the parties save time and money and evaluate the settlement value of their case,” said Mr. Segall.

Another area where the parties felt that money could be saved was by intelligent management of discovery, particularly e-discovery.  As Mr. Segall noted during the discussion, “once you turn the electronic discovery spigot on, the ability to settle a case goes down.  The fact is important documents in any case are typically contained in a notebook no more than an inch thick.”  He added that JAMS, CPR and other ADR providers have designed protocols to make the production of electronic evidence far less burdensome and expensive than if the parties were litigating in court.

Mr. Segall said the biggest take-away for attendees was that the participants and panel agreed that arbitrators should continue managing their cases in ways that contain costs as well as maintaining the focus on issues that ultimately impact liability and damages.

ADR News of the Day for Friday, August 12, 2011

Here’s a round-up of ADR news happening around the world.

BP faces new arbitration claim over failed Rosneft tie-up

Leonard Cohen, Slavic Melancholia and Mediation

International arbitration plays key role in gas deal, Egypt’s future

Meet the 2011-2012 Class of Weinstein International Fellows: Savath Meas

Savath Meas

Savath Meas

The Weinstein International Fellowship program, launched in 2008, provides opportunities for individuals from outside the United States to visit the U.S. and learn more about dispute resolution processes and practices. It’s also an opportunity for them to pursue a project of their own design that serves to advance dispute resolution in their home countries. This year, 13 fellows from across the world were granted fellowships to come to the US as part of their fellowship and study ADR.

We asked each of the fellows some questions to learn more about their past experience and their future goals. Following is that exchange with our Cambodian Fellow Savath Meas.

Tell us about yourself and what your fellowship is.

I’m originally from Cambodia and currently serve as the president of the Cambodian Center for Mediation, in cooperation with the Ministry of Justice. As part of my Weinstein International fellowship project, I will study ADR processes in order to develop a model approach in Cambodia and better incorporate ADR methods into the formal justice system and to institutionalize mediation in Cambodia.

What inspired you to study ADR?

I was inspired to study peace building, conflict resolution and ADR to help rebuild a country destroyed by decades of civil war. In 1997, I was able to participate in a training course on conflict resolution that was conducted by international peace building and ADR practitioners. It was the first time this type of course was offered in Cambodia. The course was timely as Cambodia, a post-conflict country, faces a number of issues and challenges for future reconstruction and development, especially as the number of political and social disputes continues to grow over the years.

What will you do while in the United States?

I will work in partnership with the Consensus Building Institute (CBI) in Washington, D.C. and the United States Institute of Peace’s (USIP) Center for Mediation and Conflict Resolution. I will also study ADR and conflict resolution methodologies in the public sector and hope to develop my skills in conflict resolution, mediation and consensus building, areas which will be key to the establishment of a community mediation center in Cambodia.

Mr. Meas will be in Washington, D.C. until September and then will finish out his fellowship through December in Boston attending the Harvard Program on Negotiation.