Part 3 of 5 of the class action lawsuit against all the major modeling companies!!!
FACTUAL BACKGROUND
The Business of Modeling and the Long-Standing
New York Law Regulating Employment Agencies
1. The domestic modeling agency business is reported to involve over a hundred million dollars a year in bookings, and New York is one of the industry's worldwide hubs. Though market size and share data are private and within the control of Defendants, Defendants collectively are reported to be the largest modeling agencies in New York and the United States as a whole, and to control a substantial majority, and certainly well over half, of the market, measured by total volume of bookings, for models under contract to New York-based agencies.
2. The primary service Defendants provide to the models they have under contract is to get the models work. This service is carried out through persons who are employed by Defendants and known as "bookers". As Defendant Wilhelmina admitted in a recent court pleading, "Bookers act as the liaisons between [the modeling agencies] and the models, and often provide the only contact and connection between [an agency] and its models. The bookers and models are the heart and soul of the modeling agency." Wilhelmina Artist Management LLC v. Fernandez, Index No. 01114665 (Aug. 1), Complaint 6.
3. Wilhelmina's own pleadings admit that it is the booker's job to "negotiate and schedule bookings [or jobs] for models[and] contact and procure clients who might be interested in hiring [the agencies'] models." Id.
4. Wilehmina's admissions that (1) the booker's job is to get the model work, and (2) the bookers "often provide the only contact and connection between [an agency] and its models" are judicial admissions of facts that are well known to those in the business, which are repeated in numerous industry publications and textbooks endorsed by the other Defendants. For example:
1. One industry publication, endorsed by Defendants Ford and Elite as a reputable guide to the modeling industry, claims that: "A model agent is commonly referred to as a booker. Your booker/agent will become one of the most important people in your career." Debbie Press & Skip Press, Your Modeling Career: You Don't Have to be a SuperModel to Succeed ("Your Modeling Career") 87 (Allworth Press 2000);
2. Another publication, written by former Wilhelmina president Natasha Esch as a guide to the modeling industry, states: "Next we have the agents (bookers). The model-agent (booker) relationship is a vital one. At the beginning of your career, your agent (or booker) will be your link with your agency and with the entire industry." Natasha Esch, The Wilhelmina Guide to Modeling ("The Wilhelmina Guide") 38-39 (Simon & Schuster 1996); and
3. A leading textbook on the industry, to which Defendants Ford, Click, Wilhelmina and Zoli contributed, states: "A modeling agency employs bookers to act as the link between the clients and the models." Linda A. Balhorn, The Professional Model's Handbook A Comprehensive Guide to Modeling and Related Fields ("The Professional Handbook") 186 (Milady Publishing Company 1990).
1. Acting on behalf of the agency, the booker speaks to third parties, such as photographers, casting agents, advertising agencies, magazines and retailers about employment opportunities for models; contacts the models on a regular basis to inform them of possible employment opportunities; schedules or "books" employment engagements and negotiates the model's fees for modeling engagements.in addition, the agencies bill the models' employers for the jobs their models have performed and collect money from the models' employers on the model's behalf.
2. For these services, Defendants have for several years agreed to charge, and regularly charge, a 20% commission on all monies Plaintiffs receive for modeling. This "standard rate" applies to the vast majority of the models who are under contract to Defendants. A small percentage of highly successful models (usually defined as those who have earned over $200,000) are allowed to bargain their commission rate down to 15%, and a very small percentage of models (usually those who earn more than $500,000) are able to retain their own, actual managers and lawyers and negotiate their own contracts.
3. Defendants have claimed that this variation in pricing among models who earn different amounts reflects the absence of a conspiracy, but Defendants' own statements show that the opposite is true when such discounts began, Defendants sought to conceal them from the models and from each other, so as not to be seen to be undercutting the standard rate. Thus John Casablancas of Elite was quoted referring to rates lower than 20% as follows: "Everybody does it. But there is no point doing it unless it is secret. When we started we had telephones and nothing else. It was spooky. A few of the top girls got a... Discount." (emphasis added) This kind of covert variation from a standard price is flatly contrary to what one would expect in a competitive market and exactly consistent with the existence of an industry-wide agreement on prices that individual defendants might opportunistically violate to keep a particularly lucrative account.
4. Another salient feature of the standard modeling contract and one that is flatly contrary to Defendants' claim to be personal managers rather than employment agents is the "mother agency" clause. The "mother agency" in a typical modeling contract recites that the agency shall act as the "mother agent" at all times, which means that Defendants claim a commission on any modeling job Plaintiff obtains, even if the job was procured by another agency.in such a circumstance or when, as is often the case, one agency has agreed to send a model to work with another agency (such as IMG sending a model to work in Europe with Elite's European affiliate) the "mother agent" gets its cut from the commission that the booking agent
collects.
5. Similar to a mother agent is a "scout", who discovers a model and has the model sign a contract then claims a percentage (such as 5%) of the model's earnings from the agency to which the scout refers the model. These "scouts" operate in many states in the country, and regularly charge aspiring models hundreds or thousands of dollars on the promise of an audience before the major agencies in New York, who might sign them to a contract.
6. The Defendants have adopted the "mother agent" clause (and many other clauses) as a standard clause in their contracts. As stated in The Modeling Life, a book endorsed by Eileen and Katie Ford (Defendant Ford's founder and current president respectively) and Monique Pillard (Defendant Elite's president) as a reputable guide to the modeling industry: "When models sign with multiple agencies, one agency, usually the one that discovers or signs the model first is designated as the 'mother agent.'" Donna Rubenstein, The Modeling Life 244 (Penguin Putnam Inc. 1998). And, as stated in The Modeling Handbook, a publication endorsed by Defendant Company's owner, Michael Flutie, as a reputable guide to the modeling industry, "If a model signs a contract with Elite, New York, she might have ten other agencies she works with in Paris, Milan, Germany and Switzerland. Elite New York will still remain her 'mother' agency." Debbie Press & Skip Press, Your Modeling Career 92 (Allworth Press 2000). Similarly, Defendant Q's web page "modelsearch" asserts, "It is customary for your "mother"agency to arrange your placement with agencies in other markets."
7. On top of the standard 20% commission, Defendants also charge Plaintiffs for:
1. Incidental "services", such as advertising the models' portfolios to photographers, casting agents, advertising agencies, magazines, and others who might be interested in hiring the models; and
2. Salary advances, charged against the models' anticipated but uncollected fee for a completed modeling job. (Ford claims on its website that "Ford was the first, and remains one of the few, to pay models at the end of every week rather than waiting for client payments." Defendants treat these payments as loans, to be repaid in the event Plaintiffs' employers do not pay.
3. Defendants not only charge Plaintiffs a flat 5% fee for these "salary advances" (for a total fee of 25%), but do so regardless of how much time elapses between the time of the advance and the agency's receipt of the model's fee from the model's employer even if it is just a matter of days.
1. Defendants also earn substantial income from the employers who hire models. Defendants regularly charge the models' employers an additional 20% of the model's fee for a job. This double-dipping means that when a model is "paid" $100 for a job, the agency collects $20 from the model, plus another $20 from the employer, or $40 total, while the model takes home $80.in effect, on any given job, the agencies pocket one-third of the total amount paid by the employers who hire professional models.
2. These and other of Defendants' practices described herein are exactly the types of "extortionate overcharges" 1 that the New York State Legislature long ago declared unlawful, enacting Article 11 of the New York General Business Law ("GBL"), 17090, which set forth specific and clear rules regulating employment agencies. Among other things, that statute requires employment agencies to be licensed, limits their fees, and prohibits the operation of other business on the same premises as the employment agency.
3. Specifically, GBL 171 defines an "employment agency" as any individual or company "who, for a fee, procures or attempts to procure employment or engagements formodeling or other entertainments or exhibitions or performances." The statute excludes from the definition of "employment agency" "the business of managingwhere such business only incidentally involves the seeking of employment." This exception to GBL 171 is commonly known as the "incidental booking exception", and has been repeatedly held by the courts to mean exactly what it says that the seeking of employment must be incidental to the provision of management services.
4. In short, to take advantage of the "incidental booking" exception, Defendants must not only be in the "business of managing", but must also show that their business "only incidentally involves the seeking of employment." As set forth in the following section, Defendants cannot possibly meet that very narrow exception, and yet have banded together to falsely represent to Plaintiffs that they are "managers" exempt from the statute.
5. If a person or entity falls within the definition of "employment agency" in GBL 171, that person or entity:
1. Must be licensed by the Department of Consumer Affairs — GBL 172 requires all employment agencies conducting business in the city of New York to be licensed by the Department of Consumer Affairs;
2. May not charge fees in excess of 10% — GBL 185 (8) provides in relevant part: "For a placement in class "C" employment (which includes the field of modeling) the gross fee shall not exceed, for a single engagement, ten percent of the compensation payable to the applicant";
3. May not conduct any business other than that of an employment agency on its premises — GBL 187 (8) prohibits employment agencies from "engaging in any business on the premises other than the business of operating an employment agency"; and
4. May not pass on to the models the incidental costs of advertising the models' portfolios — GBL 187 (10) prohibits employment agencies from "requir[ing] applicantsto contribute to the cost of advertising."
Defendants' Concerted Efforts to Evade
Regulation as Employment Agencies
5. For decades after their enactment, GBL 17090 were consistently understood to apply to "modeling agencies" such as Defendants until the 1970's, when (according to court papers filed by counsel for Defendant Elite, which was then a newcomer challenging the duopoly of Ford and Wilhelmina) "the principals of the major modeling agencies of the City of New York, agreed among themselves to raise commissions charged to the models and to circumvent the licensing requirements required by the statutes of the State of New York." Ford Models, Inc. V. Pillard, Index No. 1148/77, Levinson Affidavit, Aug. 26,1977, at 9 (emphasis added).
6. This affidavit told the Court that Elite was prepared to present sworn testimony from a witness to the meeting at which Ford and Wilhelmina agreed to collude to raise prices above the 10% legislative cap.
7. According to that affidavit from Elite's own lawyer, Ford led this coordinated move to circumvent GBL 170 190 when it returned its employment agency renewal notice in 1971 and claimed that the agency had "now become management." This statement appears in an April 15,1971 letter from Jerry Ford to the New York City Department of Consumer Affairs in the Ford v. Pillard docket.
8. While the affidavit is probative of whether Defendants Ford and Wilhelmina had entered into a price-fixing conspiracy in about 1971, there are several reasons why it was not the kind of public statement that would suffice to constitute notice to the Plaintiffs. First, the affidavit itself was submitted by Elite's own lawyer in a private civil litigation, which litigation was settled. No government agency brought any enforcement action based on the statement, as members of the public might think would follow from a credible accusation of price-fixing; in fact, the agencies were allowed to proceed in business as purported managers, instead of as licensed agencies. The affidavit was not publicized at the time, and when it was publicized, years later, it was in an article that had numerous quotes from the parties indicating their dislike of each other, from which one would reasonable infer the absence of any price-fixing conspiracy among any of the defendants, or at least that any such agreement which might have existed at the time the affidavit was made had since terminated.
9. Lengthy research and detailed investigation of documents not readily available to the public, has determined that Plaintiffs have been the subject of a long-running price fixing agreement, and Defendants' concerted efforts to conceal that agreement from Plaintiffs and the public. These facts of concealment begin with the claim made by Ford and other agencies in the 1970s that they had "become management".investigation shows that these claims were superficial: For example, work vouchers that used to read "Ford Model Agency Incorporated" were changed to read "Ford Models, Inc." The day-to-day operations of both Ford and Wilhelmina changed little if at all.indeed, both Ford and Wilhelmina now represent to the public that they have been in business continuously as "model agencies" since before the purported change in their status. See (Ford's website) (May 23), (May 23). And in fact, each Defendant continues to regularly procure employment for its models.
10. Shortly after Ford returned its license to the Department of Consumer Affairs, Ford, Wilhelmina and Elite which later decided to drop its lawsuit and join with Ford and Wilhelmina in their unlawful conspiracy raised their standard fees charged to models above 10%, the maximum amount allowed under New York law.
11. Today, no Defendant is licensed by the Department of Consumer Affairs and each Defendant routinely charges above 10% commissions.
12. Defendants have also agreed and conspired to impose additional charges on Plaintiffs that would be unlawful if Defendants were licensed agencies and were required to abide by GBL 170 190. For example, Defendants, as unlicensed agencies, currently charge Plaintiffs for the costs incurred in advertising the Plaintiffs' portfolios, in violation of GBL 187 (10), and operate "management" divisions and other ancillary businesses from their premises, often charging Plaintiffs additional fees, all in violation of GBL 187
(8).
13. Defendants' concerted efforts to evade state law applicable to employment agencies have damaged Plaintiffs and continue to damage Plaintiffs in their business or property in that Plaintiffs are required to pay non-competitive prices for Defendants' services in the form of artificially inflated commissions, and are charged other unlawful fees and costs.
Defendants' Unlawful Price Fixing Scheme
14. Defendants' scheme to evade state law limiting their fees, and their agreement on what fees to charge, is also a clear violation of federal antitrust law.
15. As noted, evidence of the inception of this unlawful scheme comes from the sworn statement of Defendant Elite's own counsel, who stated in an affidavit that Wilhelmina and Ford had agreed in the 1970s "to raise commissions charged to the models". Ford Models v. Pillard, Levinson Aff. 9. Pursuant to that agreement, Defendants in fact did raise their commissions charged to models to 15%, and then to 20%, which Defendants represent to aspiring and current models as the "standard", non-negotiable rate for model contracts in New York.
16. Since the inception of the price-fixing scheme between Ford and Wilhelmina, other Defendants including Elite itself agreed to join the conspiracy and charge the same rate to their models.
17. The Defendants later agreed among themselves to start imposing charges on the clients who hired the models, and admitted that they had reached an agreement to do so before seeking to impose such charges.
18. While Defendants continue to charge most models the standard 20% rate, Defendants have not acknowledged that an agency can lower that rate when the model begin to command a substantial amount of fees from clients. For example, the industry norm is now to charge models earning over $200,000 15% commissions.
19. Defendants also agreed and conspired to implement and maintain additional price-related restraints, both individually and as an industry, that have unlawfully restrained competition and artificially inflated the price models must pay to retain an agency. For example, Defendants have collectively worked together to draft progressively more onerous "standard" contracts that currently:
1. Require the models to reimburse the agencies for any out of pocket costs incurred by the agencies in advertising the models' portfolios;
2. Require the models to pay the "mother" agency for any modeling job the models obtain, even if the models procured the employment without an agent or with the help of another agency; and
3. Require the models to pay usurious interest rates on salary advances (As discussed above, Defendants treat these salary advances as loans, which is why the additional charge imposed by Defendants can be described as "usurious".)
Defendants' Illegal Exchanges of Information
to Facilitate their Price-Fixing Conspiracy
20. Defendants have maintained their collusive price structure through the years in various ways, including through formal and informal meetings at which they have exchanged information on rates, charges, and other economic terms of the models' contracts, and in which Defendants have plotted strategy on how to respond to new competitors who have offered models lower rates than Defendants.
21. One principal means of this illegal information exchange but not the only means has been the periodic meetings of the International Model Management Association (the "IMMA"), founded several years ago by (inter alia) Jerry Ford of Defendant Ford Models, Inc. As a purported trade organization. Membership in the IMMA is reported to be comprised of the established modeling agencies, and since 1991, the IMMA has included, inter alia, Defendants Ford, Wilhelmina, Elite, Zoli, and Next.
22. The IMMA began out of meetings among at least Ford and Wilhelmina; by 1980, these meetings occurred once a month. Among the initial topics of discussion between the three agencies were how to set rates and respond to new competitors, as well as addressing the problem of models who sign with one agency then "switch" to another. Later discussions included newer agency participants and focused on issues such as setting client rates for big campaigns such as cosmetic company campaigns, where top models from various agencies compete for the most lucrative modeling job.
23. Defendant Jerry Ford participated in the initial meeting among Ford, Wilhelmina, and others at which the agreement to fix prices was first made. Later, as an officer and controlling shareholder of Ford Model Agency, Jerry Ford helped found the IMMA. Both as an officer and controlling shareholder of Ford Modeling Agency and as a founder and officer of IMMA, Jerry Ford is represented to have played a leading role in facilitating the conspiracy between Defendants, and performed specific overt acts in furthering this price fixing scheme by spreading it to other agencies.
24. One of Ford's stated goals in founding and seeking to build the IMMA was (as noted in an article written by a Ford employee, with Ford's cooperation and approval) the adoption of standardized industry contracts — particularly important given Defendants' need to refer to themselves as managers and not agents in their contracts, and including such terms as the "mother agency" clause and the charging of a flat fee for salary advances.
25. According to reports of its meetings that have been disseminated to persons involved in the modeling business, the IMMA functions as a clearinghouse for the Defendants' exchange of information regarding prices and terms and conditions of employment, and the organization through which Defendants have discussed how to respond to upstart agencies that seek to undercut Defendants' pricing structure.
26. The IMMA has also purported to represent the leading agencies (including Defendants) to discuss uniform rates that Plaintiffs would be paid for their services.indeed, some smaller agencies have privately complained that the large agencies have used the IMMA as a vehicle for enforcing compliance by the smaller agencies with the conspiracy.
27. Defendants and their officers and agents also regularly exchange information regarding other aspects of the market for professional modeling services, including the "day rate", which is the rate charged to a client for a full day's work by a model in New York City.instead of seeking to use that knowledge to compete against each other, the agencies use such knowledge to ensure conformance with the price-fixing conspiracy, and to restrain competition.
28. As a direct and proximate result of Defendants' unlawful agreement to fix prices and their exchanges of information, Plaintiffs have been damaged and continue to be damaged in their business and property in that they have to pay supra-competitive prices for Defendants' services, in the form of artificially inflated commissions, and additional costs that are standard in the industry as a result of Defendants' conspiracy.
Characteristics of the Market that have Allowed the Conspiracy to Continue
29. There are several unique characteristics to the domestic model agency business that have allowed Defendants' unlawful practices to continue and thrive. First, the market is concentrated by geographically and in terms of market share. The domestic modeling agency business is largely run out of agencies headquartered in New York City, and dominated by a handful of large agencies (initially Ford, Wilhelmina, and Elite, joined more recently by Next and IMG); between them, these agencies are reported to control a large percentage of the total bookings for professional models in the United States.
30. Many of these and other agencies have West Coast offices, but those offices report to management in New York City, and (for reasons that go to the heart of Defendants' misconduct) many if not most of Defendants' contracts with models in California are made subject to New York law; similarly, American models who are sent to work in Europe are often referred by New York-based agencies, pursuant to contracts that are subject to New York law. Thus Defendants' agreement
31. The continuity of private ownership and management of the leading Defendants has also been a unique factor allowing their scheme to continue. Ford, which has been publicly identified as a leader in efforts to organize the agencies, through the IMMA and otherwise, has been owned or run by Eileen Ford, her husband Gerry Ford, or their daughter Katie Ford since 1947, with their daughter, Katie currently at the helm as CEO.
32. From the early 1970s until the 1990s, Elite was owned or run by John Casablancas, who is reported to still be involved in the company.
33. Monique Pillard was a top booker at Ford who left to join Elite in the 1970s, and is now a member of Elite's senior management.
34. Fran Rothchild co founded the Wilhelmina Agency in 1967, with the agency's namesake, Wilhelmina. When Wilhelmina died in 1980, Rothchild continued to own and participate in management. The agency was acquired several years ago by Dieter Esch (who has been reported as having been convicted of financial fraud) and is now run by his daughter, Natasha.
Defendants Have Admitted That They
Are Unlicensed Employment Agencies
35. Though Defendants represent to the models whom they have under contract that they are "managers" exempt from GBL 170 190, there is overwhelming evidence including numerous admissions from Defendants themselves, in court papers and elsewhere that they are, in fact, employment agencies. (As noted, to avoid "employment agency" status under New York law, Defendants must prove both that they are managers, and that the procurement of employment is incidental to their management services. Even if Defendants could prove that some aspect of their services to Plaintiffs are in the nature of management, they would still be liable to regulation because they cannot deny that the procurement of employment is one of their principal services.)
36. Most tellingly, Defendants have acknowledged in court pleadings that one of their principal functions is to obtain employment for the models. Wilhelmina has recently admitted as much in its own Complaint, filed in New York State Supreme Court, in Wilhelmina v. Fernandez. Nor is this admission new: Jerry Ford made a similar admission in the late 1970s, describing the function of a booker in a sworn affidavit in Ford Models v. Pillard. Models expect and the agencies know that the agent's main job is to find employment for the model. And Defendant Elite's Chairman, John Casablancas, has been quoted as saying: "We are just people who sell people to other people." Dun's Business Month, Oct. 1983 v123 p. 100 (3).
37. In fact, the only place where Defendants consistently purport to characterize themselves as managers is in their form contracts with Plaintiffs. These contracts have steadily evolved over the years, first referring to Defendants as "managers" instead of "agents"; more recently, they have purported to include express "acknowledgements" by Plaintiffs that Defendants are not employment agencies under New York law. Defendants have adopted these clauses even though they know that GBL 170 190 is not waivable by the model, and that courts look to the nature of the defendant's business, not the language in its contracts, to determine whether defendant is subject to the statute.
Merry
clifton, New Jersey
U.S.A.
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