×

Paramount, Content Partners Escalate Film Slate Profit Dispute

Paramount and Content Partners escalated their dispute over the returns from a slate of 25 films from the 1990s in the studio’s portfolio, in a complicated case that is shedding light on the behind-the-scenes inner workings of Hollywood financing.

In a counterclaim filed on Thursday in Los Angeles Superior Court, Paramount called Content Partners “the Hollywood equivalent of a patent troll.” Content Partners, which buys up profit participation stakes in major entertainment properties, claimed in a suit filed in 2010 that Paramount short-changed it tens of millions of dollars in returns it is owed from movies such as “Face/Off,” “Rules of Engagement,” “Runaway Bride” and “The Truman Show.”

Reacting to Paramount’s counterclaim, Martin Singer, the attorney for Content Partners, said that it was “in my opinion the most absurd lawsuit a studio has filed” in the 35 years he has been practicing law, and he said that it would subject the studio’s attorneys to claims of “malicious prosecution.”

“These are defensive maneuvers [by Paramount] to try to avoid what they owe to their co-finance partners,” he said.

In its counterclaim, Paramount said that Content Partners engaged in a “civil conspiracy” with JPMorgan to obtain the lender’s interest in the profit participation from the movies, even though the studio’s revenue participation agreements with J.P. Morgan required that it first obtain consent. The studio said that it “would never consent to an assignment of rights” under its agreements with J.P. Morgan because Content Partners was a “‘scavenger’ that was intent on pursuing baseless claims and bad faith litigation against Paramount.”

The dispute stems from a complex structure of financing movies, in which J.P. Morgan, starting in 1996, organized and administrated syndicated loans to five “special purpose” companies that would then purchase participation interests in the 25 Paramount movies. JPMorgan, in an effort to make the loans “risk free,” gained access to insurance and would be paid off if the participation payments were not enough to repay the loans, according to Paramount’s claim.

But insurance companies balked at such a beneficiary arrangement, and, after challenging the policies in court, reached a settlement with JPMorgan in 2004. In its counterclaim, Paramount says that JPMorgan, after notifying the studio that it had obtained a “deed in lieu of foreclosure” from the special purpose companies, the revenue participation agreements were assigned directly to JPMorgan. The agreements barred JPMorgan from further assigning the agreements, or from disclosing the studio’s financial information to other parties, the studio said.

In 2007, as JPMorgan tried to interest Paramount in buying out its stake in the movies, the studio says that the bank engaged an auditor, Hacker Douglas, who made “improperly calculated” amounts showing that Paramount underpaid some $20 million on a series of the movies. In its complaint, the studio said that the “false accusation” was made even though the auditor had raised the same claim in previous litigation with the insurance companies, but that JPMorgan’s attorney had rejected the accusation.

Paramount claims that JPMorgan was attempting to “drive up the buyout price,” enlisting Los Angeles investment bank Salem Partners to help value cash flows. But Salem Partners, Paramount said, also vowed that potential litigation over the audit would be a “P.R. nightmare” for the studio, as it would be portrayed as having “screwed” its investors.

Paramount did not buy out JPMorgan’s participation. Instead, the studio said that the bank instead found a buyer in Content Partners. But because such a deal would require Paramount’s consent, something that it would not do, they came up with a “contrived” way to assign rights, the studio says. JPMorgan “purported to substitute itself as ‘debtor’…and transferred position as purported ‘lender’ to Content Partners,” which has never served as a commercial lender, the studio said. The structure “would allow JPMorgan and Content Partners to conceal their unlawful transaction,” Paramount said.

When Content Partners filed suit in 2010, it claimed that Paramount improperly allocated costs, inflated expenses and under-reported revenue. In an amended complaint filed in April, the company claimed that the studio “sought to finance and exploit major motion pictures at minimal financial risk to itself, while at the same time deriving millions in misappropriated sums in addition to intangible benefits including valuable publicity.” It charges “fraudulent and unfair accounting,” and is now seeking at least $165.5 million in compensatory damages.

“Now, even when confronted with its conduct, Paramount refuses to make good,” the complaint stated.

Singer said that Paramount was “well aware” of Content Partners’ involvement, even before it filed suit in 2010, and said that they have documentation to prove it. He noted how common it was for banks to sell their loan interests to third parties. Paramount “knew about it,” he said.

He suggested that the studio’s counterclaim came after the discovery process showed “they have not accounted for approximately $100 million.”

“When that information came out, that is why they decided to go on the defensive,” he said, adding that they are planning to file a motion to dismiss.

JPMorgan was not named in the litigation, and a spokesman for the bank said that they had no comment. Singer suggested that the JPMorgan was not named because Paramount has ongoing reliance on investment banks for financing. An attorney for studio said they had no comment on why the bank was not named in the suit.

The next hearing in the case will be on Tuesday.

More Biz

  • Us Basketball Team Players Lebron James

    LeBron James Breaks Silence on Kobe's Death: 'I'm Heartbroken and Devastated'

    In a heartfelt Instagram post, LeBron James broke his silence on the tragic death of Kobe Bryant late Monday, saying he was “heartbroken and devastated.” “Sitting here trying to write something for this post but every time I try, I begin crying again thinking about you, niece Gigi and the friendship, bond and brotherhood we [...]

  • Investigators work the scene of a

    Pilot in Kobe Bryant Crash Said He Was Trying to Get Above Clouds

    The pilot of the helicopter that crashed on Sunday, killing Kobe Bryant and eight others, radioed to the tower that he was trying to get above the clouds shortly before the crash, an NTSB official said Monday. Jennifer Homendy, a board member of the National Transportation Safety Board, said that the agency would look at [...]

  • Kobe Bryant Dead

    Lakers-Clippers Game Postponed In Wake of Kobe Bryant's Death

    UPDATED: This post was updated with TNT’s plans to air a tribute to Bryant.  Tuesday night’s game between the Lakers and Clippers has been postponed indefinitely following the death of Kobe Bryant on Sunday. In a statement, the NBA league office said, “The decision was made out of respect for the Lakers organization, which is [...]

  • Mimi Haleyi Weinstein trial

    Weinstein Attorney Goes on Offense Against 'Project Runway' Assistant

    Harvey Weinstein’s defense attorney went on the attack on Monday afternoon, suggesting that a sex assault accuser had fabricated her claims because it was no longer “in vogue” to be friends with the producer. Miriam Haley testified earlier in the day Monday that Weinstein forcibly performed oral sex on her at his apartment in 2006. [...]

  • Kobe Bryant Dead

    Southern California Radio Stations Go Silent in Honor of Kobe Bryant

    Southern California radio stations are holding a moment of silence at noon to honor NBA legend Kobe Bryant, who died on Sunday. The stations dedicated one minute and eight seconds of silence to Bryant. The eight extra seconds are a reference to his original jersey number. The Southern California Broadcasters Association gave specific instructions on [...]

  • Harvey Weinstein arrives at court for

    Weinstein Defense Makes Third Request for a Mistrial

    Harvey Weinstein’s defense team filed a formal request for a mistrial on Monday, arguing that numerous judicial errors have hopelessly prejudiced the jury. The motion was the third request for a mistrial since the proceedings got underway earlier this month. In the motion, defense lawyer Damon Cheronis argued that Annabella Sciorra had given hearsay testimony [...]

More From Our Brands

Access exclusive content