Pix fraud trial opens with budget talk

Prexy Brown comments on investigations conducted

Franchise Pictures presented jurors with an alternate reality of film financing Wednesday in opening arguments at its fraud trial. Plaintiff is German distributor Intertainment.

Franchise attorney Bill Price said Intertainment CEO Barry Baeres and Franchise CEO Elie Samaha consistently sat down and figured out how much money Intertainment needed to contribute on each picture and then backed into what the deal described as a “capped budget.”

Price outlined an elaborate arrangement under which Baeres and Samaha would see what other sources of financing were available and then come up with a budget amount that would fit within the deal’s requirement that Intertainment pay 47% of the budget.

It was so important to Baeres that he get Franchise’s films, said Price, that he didn’t really care about the budgets. Price pointed to the fact that while the agreement contained a rebate provision under which Intertainment got the bulk of the savings if the pics came in under budget, Baeres never asked for a final budget report or a rebate.

Price also addressed the $100 million Intertainment is seeking, saying the Teutonic distrib is trying to collect other people’s money. On the early films, such as “The Whole Nine Yards,” Intertainment took delivery of the films and is claiming a total of approximately $16 million in overcharges. On the later films, such as “Get Carter” and “Driven,” Intertainment refused to accept delivery and didn’t pay on the letters of credit because it had already discovered the alleged fraud. Nonetheless, Intertainment’s bank, Hypo Bank, did pay once the films were completed and ultimately wrote off the loan.

USA-Intertainment president Stephen Brown, Intertainment’s first witness, testified that soon after he joined the company in June 2000, he became suspicious, but it was not until a year into the litigation that he heard Franchise say there was a secret deal between Baeres and Samaha on the budgets.

After a screening of “Get Carter,” Brown was concerned that it wasn’t really a $63 million movie. Shortly after, he learned that the real budget on “City by the Sea” was $39 million, not $56 million, and decided to launch his own investigation of the budgets. After Brown arrived, Intertainment stopped licensing Franchise’s pictures.

On cross-examination, Price implied a different reason for Brown’s budget investigation — it was a way to get out of the deal with Franchise and replace it with a deal with producer Arnold Koppelson. Brown was a longtime Koppelson employee, and Intertainment did sign a deal with Koppelson shortly after Brown’s arrival.

Price also grilled Brown on whether his budget investigation included asking Baeres how budgets were really done before his arrival. Price showed that letters of credit were issued on “The Heist” and “Get Carter” without budgets being provided. Price also showed Brown a heavily hand-annotated version of the multipicture deal that makes some reference to two budgets — one with direct costs and a second “bonded budget.”

Brown said he based his investigation on his understanding of the contract and his previous experience as a producer reviewing budgets.

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