Artisan fraud case rejected

Suit failed to show financier's malicious intent

A judge has thrown out — at least temporarily — Artisan Entertainment’s fraud case against financier Peter Hoffman and insurer Royal & Sun Alliance over an insurance-backed film finance deal that went sour.

In a ruling late last month, L.A. Superior Court Judge Frances Rothschild sustained objections to the complaint by all the defendants, which include Hoffman’s associate Graham Bradstreet, ICE Media and insurance broker Heath Insurance Broking.

The judge held that the suit failed to show that the defendants had the intent to defraud Artisan when they arranged for cash-flow insurance on an eight-picture slate. Artisan claimed it wasdefrauded when the insurance was pulled after two pictures. The insurance was security for a $100 million loan from Chase Manhattan Bank.

Royal Sun’s attorney, Bruce Friedman of Alschuler, Grossman, Stein & Kahan, said, “We are very pleased with the court’s order and look forward to a complete vindication of our position.”

Artisan’s attorney, Michael Chodos, said the company would file an amended suit Wednesday. He declined to say whether the new pleading would allege fraud. Artisan could file a breach of contract claim, or both fraud and contract claims. Fraud claims often allow the plaintiff to get more damages than contract claims.

Rothschild’s remarks at a pre-trial hearing indicate that Artisan could have a tough time repleading fraud. She said Artisan probably had a breach of contract claim, but remarked, “As to the fraud, my opinion is — from what I’ve seen — it is much less likely.”

Said Hoffman attorney Randy Sunshine: “The judge not only threw out the frivolous claim against Peter, but told Artisan she had no idea how it could fix the complaint. Faced with that record, if Artisan attempts to keep my client in the case, its malicious intent will be all the more apparent, and believe me, Mr. Hoffman is prepared to vigorously pursue his malicious prosecution rights at the appropriate time.”

Artisan’s original complaint, which was filed in May, alleged that Hoffman approached former Artisan CEO Mark Curcio in May 1998 and proposed a means for the company to obtain sufficient financing to produce a slate of eight pictures by obtaining cash-flow insurance as security for a Chase loan.

The result was a complex $163 million financing arrangement with Chase in October 1999. At the same time, Artisan made a deal with Royal & Sun to provide cash-flow insurance for each pic.

That month, Artisan obtained financing for the first two pics in the pool, “Stir of Echoes” and “The Ninth Gate.” But on the next three films, “Way of the Gun,” “Blair Witch 2” and “Soul Survivors,” the insurance company refused to issue the insurance and made it clear it did not intend to insure those three or the last three films of the slate. Chase then refused to release financing for those films.

As a result, Artisan was forced to use other assets and lines of credit to pay for already-produced films and halt new production. It had to use its own funds to complete production of “Novocaine.”

Artisan also claimed it had to postpone and ultimately cancel an IPO due to the cancellation of the cash-flow insurance and the Chase loans.

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