The Martin Sheen v. Screen Actors Guild lawsuit was filed with great fanfare on February 22, 2012, just as ballots were going out to SAG and AFTRA members to vote on merger. It demanded that the U.S. District Court in Los Angeles halt the pending vote for merger of SAG and AFTRA in its tracks because SAG and its officers had failed to exercise proper “due diligence” before proceeding with the merger vote. This was cast as a “breach of fiduciary duty” under both federal labor law and California law.
The filing of the lawsuit appeared to be strategically timed to cast a cloud over the merger balloting period. The cliffhanger atmosphere was increased when the plaintiffs filed a Motion for Preliminary Injunction, set for hearing on the same week that ballots were due to be counted. The Motion asked that the Court halt any tallying or announcement of the merger vote.
In the end, all of the legal maneuvering came to nothing. On March 28th — two days before the voting was to close — the District Court issued a detailed opinion rejecting plaintiffs’ request for injunctive relief. On March 30th, the votes were tallied, and the world learned that SAG and AFTRA members had each voted overwhelmingly in favor of merger. Upon the formal announcement of that vote, the new SAG-AFTRA was born.
The Sheen v. SAG lawsuit is still pending, however. Obviously, the requests for injunctive relief are now moot. It’s too late to stop the counting of the SAG-AFTRA merger vote, or to require further studies to be conducted or further information to be furnished to members before they are asked to vote. That train has left the station.
From a strictly technical standpoint, however, the District Court ruled that in their complaint, the plaintiffs had stated legally sufficient claims for various flavors of breach of fiduciary duty. This ruling means very little as a practical matter, however, even though it technically keeps the lawsuit alive.
That is because in ruling on a motion to dismiss, as was filed here, the District Court was basically required to look only within the four corners of the complaint, to assume that all of the factual assertions were true — no matter how unlikely — and to assume that plaintiffs would have no problem proving those assertions. It is, in essence, a hypothetical exercise.
In the real world, however, the rest of the District Court opinion makes it fairly clear that this lawsuit is dead. Here’s why.
Plaintiffs’ case made two main assertions:
1. That SAG’s constitution expressly required certain studies of the merger’s potential effect on the Pension and Health plans before voting could proceed.
2. That apart from specific constitutional language, general fiduciary principles required such further study of the merger’s impact, and further disclosure to members.
The District Court rejected these arguments in ruling on the request for a preliminary injunction — ironically, because of the very fact that these plaintiffs had been allowed to include their Minority Report in the materials sent to SAG and AFTRA voters. What’s more, that report included a link to a website where the plaintiffs’ arguments could be elaborated at unlimited length. The District Court ruled that even if the information provided by SAG to its members was assumed to be misleading, the contrary information provided by the plaintiffs “negates any misleading effect.”
The [minority report] expressly informs the Membership of Plaintiffs’ position that the SAG packet is insufficient and misleading. Although the Membership would potentially not have all the information regarding the extent of the merger, they are not required to know all details before casting a vote. The Membership is entitled to a meaningful vote, which can be achieved through notice that the information they have been given is incomplete.
[H]ere, the Membership has been informed that SAG’s referendum packet is potentially incomplete, that Plaintiffs interpret the SAG Constitution to require an impact study prior to merger, and that the Board has not conducted such a study except as a general review. . . . Ultimately, the Membership has sufficient information from which they can draw their own conclusions about the wisdom of merger under the present circumstances. Although they cannot know the results of an actuarial study that has not been conducted, the Members know enough to decide whether they need more information about the impact of merger on benefits. Some Members may decide that there are too many unknown variables to vote for merger at this time; others may decide that they are willing to risk the unknown in order to merge the unions quickly. At the end of the day, the Members are on notice that in-depth studies have not been conducted since 2003, and that is enough to enable a meaningful vote.
The District Court also noted the overwhelming vote of the SAG board in favor of merger, and the strong policies of federal courts (a) not to interfere in internal union affairs except where absolutely necessary, and (b) to give great weight to the union’s own interpretation of its constitution. The District Court found that plaintiffs were “unlikely to succeed on the merits under any theory.”
So why are we still here? The District Court has made it clear that it doesn’t think plaintiffs have much of a case. At this point, the lawsuit is kind of like a ghost ship, drifting about with no cargo and no ammunition. Unfortunately, as with the 2009 Gang of Four lawsuit (involving some of the same plaintiffs), it will probably require a motion by SAG and/or the individual defendants to get rid of this one.
One thing that stands out in all of this: The immense wisdom of the SAG board in voting to allow a minority report to be included in the merger ballot materials, even though the official standards for including such a report had not been met. It is largely because of that minority report that plaintiffs lost their bid for an injunction, and that the merger vote went forward.
Moreover, the claim by the plaintiffs that their lawsuit somehow helped to bring more information to SAG members is complete nonsense. The SAG Board had already voted to send out the minority report long before the lawsuit was filed. Nothing changed after the lawsuit was filed, except that the mythology surrounding the 2003 Mercer Report was laid to rest once and for all, which hurt plaintiffs’ case.
It’s time to scuttle this ship.