Relativity, Netflix Lock Horns in Protracted Hearing Over ‘Masterminds’ Release

The legal confrontation between Relativity Studios and Netflix entered into a protracted and contentious phase May 19, in an afternoon-long hearing that saw Netflix push for the right to stream two Relativity titles prior to their theatrical releases.

The wrangling over “Masterminds” and “The Disappointments Room” encompassed some tough exchanges. Attorneys for Netflix, led by Scott McNutt and Stephen R. Mick, took an aggressive stance from the beginning, with an opening statement that raised the question of whether the proceedings even belonged in bankruptcy court or, as lawyers for Netflix argued, in binding arbitration.

Judge Michael Wiles batted back, saying he wanted to hear the evidence before deciding whether to kick the matter into arbitration — and mentioning as well that suggestions had been made to him that Netflix was taking its current position at the hearing “in bad faith.”

The three-and-a-half-hour session on Thursday afternoon heard the testimony of only one of the three witnesses that Relativity’s lawyers, led by Richard Wynne, intended to call to the stand. Both sides haggled over the details and relevance of the testimony, as well as the phrasing of questions, during the appearance on the stand of Linda Benjamin, an entertainment attorney who worked at Relativity from 2008-14.

Neither “Masterminds,” a bank heist comedy starring Kristen Wiig, Jason Sudeikis and Zach Galifianakis, nor “The Disappointments Room,” a horror film starring Kate Beckinsale, looks poised to set the box office on fire. But their theatrical releases, and the revenue derived from them, remain key components of the studio’s plan to return itself to solvency. Wynne argued that the restructuring agreement that got Relativity out of bankruptcy was predicated on financial projections “built on the backs” of contracts with Netflix.

With Benjamin, Wynne worked to establish the typical scope of distribution agreements, and whether extensions were common when initial release dates were missed. Discussion harked back to a 2010 deal between Relativity and Netflix, a pact on which Benjamin worked, and the conditions outlined in it and its amendments.

Netflix has been one of Relativity’s most vocal critics throughout the studio’s bankruptcy hearings and restructuring efforts. In the battle over “Masterminds” and “The Disappointments Room,” the streaming service argued that Relativity’s failure to deliver films on schedule should release them from any expectations that Netflix would wait to stream the two films until after their theatrical release.

During a May 10 hearing, Wiles had already indicated he was inclined to reject Netflix’s bid to stream the films early, since it seemed clear to him that the original agreements between the two parties envisioned the movies hitting the bigscreen prior to SVOD release. He also noted that an early streaming release could well doom the two films to financial oblivion, thereby threatening the precarious standing of the reborn Relativity and also injuring other parties to the bankruptcy who would receive revenue from the films’ releases (including CIT Bank and RKA Film Financing).

Wiles is the same judge who presided over Relativity’s lengthy bankruptcy proceedings, finally approving a restructuring plan in March that officially took effect last month.

At the Thursday afternoon hearing, he and lawyers for both sides agreed to reconvene the following morning in order to finish hearing the testimony of Benjamin and of Relativity’s other witnesses, as well as of the witness that Netflix intended to call. “Let’s do what we can to try to finish tomorrow,” advised Wiles, adding that he hoped to issue a ruling on the matter by the end of Friday or on Monday.

As the legal wrangling over its declaration of Chapter 11 dragged on, Relativity missed a host of release dates. But the company has since put out a schedule of six theatrical releases for the coming calendar year, including “Masterminds” on Sept. 30 and “The Disappointments Room” on Dec. 16.

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