PBS and Nesmith settle home video dispute -- but they're mum about price
Originally published in Current, July 19, 1999By Robert N. Wold
Los Angeles -- The 63-month-old legal fight between public TV and the former distributor of PBS Home Video, Michael Nesmith, was "resolved amicably," both sides told the U.S. District Court here on July 7 [1999].
PBS--appealing damages of $47 million levied by a federal jury in February--agreed not to reveal what it will end up paying, said spokesman Tom Epstein, but he noted that all settlements are compromises.
"A happy finish for everyone," said PBS's lead attorney Jonathan D. Schiller, as he left the courtroom. A grinning Nesmith sought out Schiller, his opponent, and gave him an apparently gracious "thank you."
PBS President Ervin Duggan later wrote in a memo to his staff that the network will pay the settlement out of proceeds from its self-supporting, revenue-generating businesses, and services to stations will be "unhindered," according to Epstein. Duggan said PBS will be able to meet its budget growth targets for 2000 and beyond.
Epstein would say only that the PBS settlement "was less than what Michael Eisner had to pay Jeffrey Katzenberg"--referring to the just-settled court struggle between the chairman of Walt Disney Co. and his former protege, who won $250 million or more, by estimate of the Los Angeles Times.
By agreement among PBS, major producers and Nesmith, the details of their settlement were ordered sealed for confidentiality by Magistrate Judge Brian Q. Robbins, who presided over the trial and post-trial motions.
The PBS Home Video litigation began in 1994 when several producers and PBS sued Nesmith for overdue rights payments; Nesmith responded with counterclaims in 1995. The combined cases went to trial Jan. 6 this year. After 12 days of oratory and testimony, the judge issued 181 jury instructions and gave the jury a verdict form requiring decisions on 47 items.
The six plaintiffs included PBS, which had anointed Nesmith's Pacific Arts Inc. as its home video distributor in 1990, and several of the label's major producers--WGBH, Boston; WNET, New York; American Documentaries and Radio Pioneers Film Project, production companies owned by producer Ken Burns; and Children's Television Workshop. They sought approximately $5 million in unpaid royalties, advances, guarantees and license fees for programs and the PBS logo. Though Pacific Arts had ceased operating, the plaintiffs were counting on a personal financial guarantee Nesmith signed as part of the original PBS deal in 1990.
By the end of the trial, however, the judge and jury were concentrating on Nesmith's counterclaims. Henry Gradstein, lead attorney for Nesmith, contended in a brief that the company's video rights were worth enough for it to have paid off its overdue debts to the producers. But, he said, PBS had concocted a "dastardly scheme, which was played out with military precision, to strip Pacific Arts of its assets by inducing Pacific Arts not to file bankruptcy, by lulling it into a sense of security while it organized a mass termination of Pacific Arts' licenses, i.e., the PBS library."
After three days of deliberation, the jury resolved the overdue debts issue by ordering Nesmith to pay debts to the producers--nearly $1.2 million to Burns' American Documentaries for The Civil War, about $230,000 to WGBH, and $150,000 to WNET, but directed PBS to indemnify Pacific Arts for these amounts.
On the counterclaims, the jury found PBS liable for breach of contract, intentional misrepresentation (fraud), intentional concealment (fraud), negligent misrepresentation, and interference with contract. It awarded Pacific Arts $14,625,000 for loss of its rights library, plus $29,250,000 in punitive damages. The jury awarded $3 million to Nesmith personally, including $2 million in punitive damages.
"If upheld," PBS's attorneys later observed, "the total award of $31.25 million in punitive damages will stand in disrepute as the highest award of punitive damages in California history."
Armed with cartons of files
The court wanted a settlement instead of further trials. It had already fostered a mediation attempt in early June by retired former California Supreme Court Justice Edward Panelli.
The lawyers apparently did not reach a deal, so Judge Robbins scheduled a two-day hearing July 7-8 to review PBS's post-trial motions. PBS was asking the judge to: grant a new trial as to liability and/or damages, or a partial new trial; rule in its favor as a matter of law; or strike the jury's award of general and specific compensatory damages and punitive damages, or for a reduction of damages on Nesmith's counterclaims.
On the 7th, Schiller, the Washington attorney hired by PBS after its big loss in February, arrived in court with a squadron of eight other attorneys, plus two corporate overseers, along with numerous graphic blowups and a dozen cartons of files.
On Nesmith's side were two attorneys, three file cartons, Nesmith and his companion, ex-model Victoria Kennedy. Last to arrive was Gradstein, Nesmith's lead attorney, who called the others into the hallway.
The battle, if any remained to be fought, was fought in secrecy. The lawyers met privately for hours, and at day's end they disappeared into the judge's chambers, where he blessed their settlement.
Most likely, neither side wanted to risk a worse outcome than they had already, and they didn't want the case to remain unresolved for years. If the judge had upheld the jury's verdict, according to court sources, parties would have waited at least two years for a hearing in the Ninth Circuit U.S. Court of Appeals.
An expedient course became remittitur, or reduction of damages, which the parties apparently negotiated and Judge Robbins approved. How much of a reduction? Some indication may appear in the footnotes of PBS's future annual reports.
The scene in January
The parade of trial witnesses in January included, of course, several PBS executives. Beth Wolfe, the senior v.p. of finance and administration (since elevated to executive v.p.), was on the stand for most of three days. Senior Vice President Eric L. Sass was grilled, as were former President Bruce Christensen and former Senior Vice President William Reed. Andrew S. Griffiths of WGBH, Marjorie Kalins of CTW, and former WNET executive Alice Kossoff took turns in the chair. So did Ken Burns and his attorney, former WNET legal counsel Robert Gold.
Nesmith took the stand for three days. Gradstein first had his client describe his "reversal of fortune"--events that reportedly drained his bank accounts. By all accounts, Pacific Arts built the PBS Home Video line faster than revenues came in, and he was soon behind on rights payments to producers.
When Nesmith met with Christensen in 1992 to discuss Pacific Arts' financial problems, he recalled, "I felt like the guy at a great party who has to say, 'Excuse me, I think we hit an iceberg. Put down your soup spoons, please.'"
As Nesmith's relationships soured with key people at PBS, he nevertheless assured Christensen that he would not take Pacific Arts into bankruptcy if he could get PBS's help with his "wish list." On Jan. 13, 1992, his main PBS contact, Eric Sass, sent him a supportive letter and confirmed plans to fulfill the "wish list" for economic restructuring, specifically a "wind down" that would enable a sale of the assets and paying of the bills "so I [Nesmith] can go home." Progress, however, became slow.
In return for signing a short extension of his financial guarantee in February 1993, Nesmith sought promises from PBS that his business wouldn't be "blown up." Sass responded with another encouraging letter, Feb. 12. Sass wrote: "PBS shares your desire to avoid a cataclysmic disruption of distribution under the PBS Home Video Label. ... [In the event of termination] we would support some prudent and flexible approach to properly winding down activities." Christensen, Nesmith's strongest supporter at PBS, retired that summer.
At PBS there was genuine concern about what a Pacific Arts bankruptcy could do to the video line. The network had repeatedly sent notices to Nesmith that he was overdue with his payments, but its executives had also repeatedly reassured him.
In October 1993 the network moved to protect its interests by systematically phoning all rights-holders and recommendeding that they cancel their Pacific Arts agreements on Monday, Oct. 11, the same day PBS would be ending its "label" agreement. It was a federal holiday, Columbus Day, when courts would be closed and no bankruptcies could be filed. Nesmith's attorneys called it "The Columbus Day Massacre."
Nesmith himself remembered: "It just rained, it rained cancellations all that day."
"PBS induced Nesmith not to file bankruptcy," Nesmith's attorneys charged in post-trial papers, "and then it successfully executed a contingency plan to take the core assets out of Pacific Arts so that it could not file bankruptcy until it was too late."
Without the program rights, Pacific Arts soon collapsed, and PBS moved its retail cassette distribution to Turner Home Entertainment, now part of Time Warner.
Would Nesmith have filed for bankruptcy if he had known of the coming Columbus Day scheme? "In a minute," he testified. "In a New York minute."
But PBS has since argued that Pacific Arts could not have saved itself by selling off its program rights, because the licenses did not expressly permit assignment of those rights. And so Nesmith is entitled to no damages for losing the opportunity to go bankrupt, PBS said. It was the network that was the "truly injured party."
"The 'sad story' of Nesmith's personal financial collapse, wholly irrelevant to PBS or this trial, was orchestrated to kindle the jury's sympathy for Nesmith," PBS said this year in a post-trial motion.
When Pacific Arts asserted, "PBS is a quarter-billion-dollar corporation with nearly $370 million in gross revenues," PBS countered: "PBS has annual net revenues of less than $15 million and a net worth, excluding illiquid assets ... of $67 million." The jury verdict would "cripple" PBS, depriving it of "more than two years of available net income."
At one point in the trial, Ken Burns recalled in his testimony a dinner at Nesmith's home, describing candles, silverware and "efficient servants."
Gradstein interjected to the judge: "Your honor, let the record show that they were not servants. They were caterers."
The author, Robert N. Wold, is a writer based in Los Angeles and was founder of the pioneer satellite firm Wold Communications. He can be reached at robertnwold@home.com.
Earlier news: Jury hits PBS with $47 million fraud verdict, February 1999.
Web page created July 21, 1999
Current
The newspaper about public television and radio
in the United States
A service of Current Publishing Committee, Takoma Park, Md.
E-mail: webcurrent.org
301-270-7240
Copyright 1999
To Current's home page