Intertainment alleges Franchise defrauded co. by $100 mil

This article was updated at 9:24 p.m.

A pair of once-high-flying film upstarts head to court this week, bringing to a head their 3-year-old dispute over allegedly fraudulent pic budgets.

Much has changed since Elie Samaha’s Franchise Pictures and German distrib Intertainment joined forces on a slate of pics that included “Get Carter,” “Battlefield Earth,” “3,000 Miles to Graceland” and “The Whole Nine Yards,” but the future of both companies may hang in the outcome of the trial, which is expected to begin Tuesday.

Intertainment alleges in its lawsuit that Samaha’s company bilked it to the tune of $100 million by artificially inflating and distorting the budgets of pics including “Get Carter,” “Battlefield Earth,” “3,000 Miles to Graceland,” “The Art of War” and 2000’s “The Whole Nine Yards,” Franchise’s biggest hit with more than $100 million in worldwide box office.

Since that high-water mark, however, the landscape has shifted for both companies. Sequel “The Whole Ten Yards” bowed last weekend in eighth place with $6.7 million and dropped out of the top 10 entirely this weekend, grossing just $3.7 million in 11th place. Ten-day cume is $12.6 million.

And Intertainment, which had the most successful IPO of 1999 on Germany’s now-defunct Neuer Markt, has seen its share price plummet. While still publicly traded, the company’s primary focus is its litigation against Franchise.

Intertainment is expected to argue at trial this week that when CEO Barry Baeres made a deal in 1999 with Samaha to finance a 60-picture slate, he believed he was putting up 47% of the budgets in exchange for certain foreign distribution rights. Intertainment says it believed loans by Imperial Bank (now Comerica) were also backed by foreign pre-sales, other investors, foreign tax credits and studio advances.

The fraud, says Intertainment, is that it was, in fact, providing as much as 90% of the budgets on pics it financed with Franchise. The company says it was kept in the dark about the real cost of the films because Samaha provided it with wildly inflated budgets and actually kept multiple budgets that he gave to different entities.

Franchise’s defense is expected to be that Intertainment’s Baeres was a willing participant in the budget fraud because he was so eager to get Samaha’s movies.

A-list relationships

At pre-trial hearings, Franchise has said Baeres got American movie stars at below-studio prices because of Samaha’s relationships with talent such as John Travolta, Sylvester Stallone and Kevin Costner. Franchise claims it was not until Intertainment’s stock price plummeted and Franchise released B.O. disappointments “Get Carter” and “Battlefield Earth” that Baeres asserted he was the victim of fraud.

On Friday, Richard Schirtzer, whose firm Quinn, Emanuel, Urquhart, Oliver & Hedges represents Franchise, said, “The evidence at trial will establish that Barry Baeres’ attempts to portray himself as the victim of other parties’ misconduct is laughable.”

Intertainment’s attorney Scott Edelman of Gibson, Dunn & Crutcher said simply, “We’ve worked hard. We feel good about our case, and we look forward to putting it before a jury.”

Whatever the trial’s outcome may be, it will not resolve all the issues.

Intertainment also sued Comerica Bank and the two bond companies on the films, claiming they knew or should have known about Franchise’s budget fraud but approved the budgets anyway. Those suits have been sent to arbitration; that process is expected to begin in November.

High-profile personality

Samaha made a splash on the Hollywood scene in the late ’90s, attracting feature-length profiles in the New York Times and the Wall Street Journal about the Lebanese former dry cleaner with the flamboyant personality who was transforming himself into a movie mogul by producing stars’ pet projects — Travolta’s “Battlefield Earth” and Bruce Willis’ “Whole Nine Yards” — in return for getting them to defer their salaries.

Today, Franchise has a decidedly lower profile.

It retains its domestic distribution deal with Warners and has put out a slate of mostly mid-budget films. Recent pics include Val Kilmer kidnapping thriller “Spartan,” which has taken in $4.4 million domestically since its March 12 bow, and 2003’s Rob Reiner romancer “Alex and Emma,” which grossed $14.2 million.

In addition to funding through foreign pre-sales, Franchise also added construction titan Ron Tutor and his partner David Bergstein as equity investors. They acquired a 45% stake in the company in 2003. Foreign sales are now handled by Mobius, which is headed by Bergstein (Daily Variety, Feb. 24).

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