Darabont and his CAA agents claim they are owed "tens of millions of dollars" from TV's top-rated drama. "AMC’s conduct toward Frank to date has been nothing short of atrocious," his lawyer tells THR.

Ousted The Walking Dead creator Frank Darabont has slapped AMC with a bombshell lawsuit alleging that the cable channel breached his contract and deprived him of tens of millions of dollars in profits from the hit series by making a sweetheart deal licensing the show to itself.

The suit, filed Tuesday in New York state court and obtained by The Hollywood Reporter, hints that a standoff over Darabont’s profit participation, which has been brewing since February 2011, might in part explain his abrupt dismissal in July of that year, only weeks into production of Walking Dead's second season and two days after he had appeared at Comic-Con to promote the show. AMC never explained the firing publicly or, according to the suit, to Darabont himself.

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“AMC’s conduct toward Frank to date has been nothing short of atrocious," Darbont's lead lawyer Dale Kinsella tells THR. "Unfortunately, the fans of The Walking Dead have suffered as well by being deprived of his creative talent."

THR has reached out to an AMC spokesperson for comment and will update with a response.

AMC premiered The Walking Dead in October 2010 and it quickly became the biggest show on cable. Rising again in its fourth season, the zombie apocalypse drama now averages a staggering 13 million viewers -- 8.4 million of them adults 18-49. The haul in the pivotal advertising demographic solidifies its status as the highest-rated scripted series across television, and on several Sundays this fall it even outperformed NBC's Sunday Night Football.

Read the Complaint Here

But court papers assert that Darabont and his agents at CAA, which also is a plaintiff in the suit, have not received even one dollar from his promised profit participation in the mega-hit series. The suit says that as of September 2012, two years after its premiere, AMC — which both produces and airs Walking Dead — claimed the show was running a deficit of $49 million. An alleged sweetheart deal between the network and its production arm “is clearly designed to ensure that [Darabont and CAA] never see that first dollar,” the complaint alleges.

Darabont's lawsuit is the latest in a long line of so-called "vertical integration" cases in Hollywood that arise when the producer of a TV show also distributes it via an affiliated entity that pays a license fee to be shared with talent. License fees are supposed to be negotiated between producers and distributors to reflect the fair market value of a given series. But litigation brought by producers of hit series including Home Improvement, The X-Files, Will & Grace and Smallville have alleged artificial manipulation of license fees between "vertically integrated" companies to minimize or eliminate payments owed to talent. "This practice, known as 'self-dealing,' is at the heart of this dispute," the Darabont lawsuit alleges.

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According to the suit, AMC initially agreed contractually in September 2009 that the series would be produced by an unaffiliated studio such as Lionsgate or Warner Bros. Darabont would receive as much as 12.5 percent of that entity’s profit after standard industry deductions.

When Darabont delivered the script that was the basis for the first six-episode season, however, the suit alleges AMC decided to produce and broadcast the show in-house. Darabont’s representatives at CAA and the Jackoway Tyerman law firm agreed only “after gaining assurances from AMC that Darabont would obtain protections against improper self-dealing,” the suit alleges. Those protections included a commitment by AMC to "pay" its studio an "imputed" license fee comparable to what the show would get if it were made by an independent studio. Talent lawyers typically ask for such assurances.

Darabont repeatedly asked AMC to spell out the terms of his profit participation, the suit says, but the company waited to see how the show would perform. When it was clear that Walking Dead was a runaway hit, AMC then provided a proposal in February 2011 based on “an unconscionably low license fee formula” designed to ensure that the show would never be in profit, according to the suit. "AMC capped the license fee in perpetuity at the lower of 65 percent of the costs of producing the series or $1.45 million per episode, meaning that there would be a significant deficit on every episode produced for the life of the series."

Put another way, "Because of AMC's outrageous and improper formula, the profits pool in which [Darabont and CAA] participate may always be in deficit no matter how long-running and successful the series is," the suit alleges.

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Contrast this with AMC's arrangements on hits Mad Men and Breaking Bad, produced by independent studios Lionsgate and Sony Pictures TV, respectively. Darabont claims neither of those shows had a perpetual license fee. Indeed, AMC has become embroiled in messy negotiations with those studios. And in early 2011, around the time AMC sent Darabont's reps the revised profit definition, the network was in a heated fight with Lionsgate and Mad Men creator Matthew Weiner, a squabble that ended with Weiner scoring a reported $30 million deal and Lionsgate a markedly increased license fee for the fifth, sixth and eventual seventh seasons of the show.

The Darabont lawsuit directly connects his ouster from the show to AMC's desire to save money. AMC "fired Darabont without cause shortly before Season 2 aired precisely in order to avoid its contractual obligation to pay him increased profits (which vested fully at the conclusion of Season 2) and to avoid its obligation to negotiate to hire him as showrunner for Season 3," the suit claims.

In addition to unspecified damages he claims total in the tens of millions of dollars, Darabont also is asking for a cut of The Talking Dead spinoff talk show and the scripted companion series AMC is developing. He also claims AMC has hoarded for itself the fruits of a 30 percent production tax credit Walking Dead receives for shooting in Georgia.

Darabont is represented by Kinsella, Chad Fitzgerald and Aaron Liskin of Santa Monica's Kinsella Weitzman, as well as Jerry Bernstein and Harris Cogan of Blank Rome in New York.

Email: Kim.Masters@thr.com, Matthew.Belloni@thr.com

Twitter: @KimMasters, @THRMattBelloni