Samaha's Franchise files for bankruptcy

HOLLYWOOD — The other shoe dropped last week, when Elie Samaha’s Franchise Pictures filed for bankruptcy.

The Chapter 11 filing, made on Aug. 18, came in the wake of a court order that affirmed a $77 million jury verdict in favor of Intertainment. Samaha has said he plans to appeal the verdict.

Also filing for reorganization were Franchise’s many one-off production companies, which are also held liable for the fraud. All filings were made in Federal Bankruptcy Court in Los Angeles.

On Aug. 17, U.S. District Court Judge Alicemarie Stotler ruled that Franchise topper Elie Samaha was personally responsible for the verdict, as well as $4 million of the $29 million awarded in punitive damages. Samaha has not filed for personal bankruptcy.

One attorney familiar with the matter suggested filing for personal bankruptcy would not particularly help Samaha when he is responsible for such a huge judgment. Furthermore, such a filing would be subject to challenge since bankruptcy can’t be used to discharge debts that result from fraud.

Net worth at issue

Samaha may also want to avoid further scrutiny of his personal finances. At trial, he testified that his net worth was less than zero despite the fact that he owns a home in the Valley valued at $4.8 million.

Franchise still has a distribution deal with Warner Bros. Pictures under which the studio advances P&A costs for a film’s release. The studio still intends to handle Franchise’s sole remaining title, “A Sound of Thunder,” in the first quarter of 2005. The Ray Bradbury adaptation stars Ed Burns and Ben Kingsley.

Franchise’s financial struggles are well documented. In 2003, construction magnate Ron Tutor and business partner David Bergstein made a seven-figure loan to cover Franchise’s overhead as well as its legal fees. The deal contained a conversion feature that would have allowed the pair to exchange the sum or a portion thereof for up to a 49% stake in Franchise.

Since that conversion never took place, Tutor and Bergstein are now among Franchise’s creditors. However, Bergstein is also CEO of Mobius Pictures and, in February, Mobius became the sales agent for the entire Franchise library. Mobius does not hold the pictures’ underlying rights.

Mobius also houses several former Franchise employees, including marketing president Lori Drazen and development topper Tracee Stanley.

‘No connection’

“There is no ownership connection between Mobius and Franchise Pictures,” Mobius president Hans Turner told Daily Variety. “Mobius’ parent is a secured creditor of Franchise.”

German distributor Intertainment said Friday that it would go through with its claims against Franchise. In a statement, Intertainment called the move “predictable.”

Next up for Intertainment is a January arbitration against Comerica Bank (formerly Imperial Bank) and the completion bond companies. Intertainment claims the bank and bond companies knew about the budget fraud and had an obligation to stop it. Intertainment is claiming damages in excess of $100 million.

In June, Intertainment presented its long-running fraud case against Franchise and Samaha to a federal jury. The once high-flying distributor claimed it had been defrauded into paying on wildly inflated budgets, so that instead of paying 47% of the budget, as the companies’ agreement called for, Intertainment ended up covering most of the costs for films including “Get Carter” and “The Whole Nine Yards.”

The jury found Samaha responsible for the budget fraud but apportioned all the damages to Franchise. As a result, Franchise took the position that the judgment was unenforceable because Franchise is an empty shell and Samaha was not personally liable.

In her final order, however, Stotler found that the jury intended to hold Samaha liable for damages and that all Franchise defendants, including Samaha, were jointly liable for the entire damage award.

(Ed Meza in Berlin contributed to this report.)

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