Financial Conspiracy on More than 24 Films Paramount to Sue JPMorgan

Newsflash from your Hollywood Attorney:

Paramount Pictures is primed to face off directly with JPMorgan with an allegation that the largest bank in the United States secretly conspired to interfere with the studio's rights on more than two dozen films.

The studio believes the banking giant made a secret deal in order to recover money on "risk free" loans on 25 films including "The Truman Show," "Face/Off" and "Runaway Bride."

The suggestion of "conspiracy" comes in the midst of a 3-year-old lawsuit between Paramount and Content Partners, a company that specializes in acquiring cash flows arising from intellectual property in film, television and music and whose investors included former Broadcast.com partners Mark Cuban and Todd Wagner. Paramount stands accused of cheating Content out of more than $100 million on 25 films including The Truman Show, Face/Off and Runaway Bride, but the studio is fighting back, saying that Content is a "scavenger" with "no interest whatsoever" in participation agreements and that its antagonist merely serves as a "plaintiff-for-hire."

In June, Paramount filed a cross-complaint against Content, blaming JPMorgan for much of what happened. At the time, the bank wasn't a direct party in the lawsuit. But that is about to change.

On Tuesday, a Los Angeles judge is scheduled to hold a hearing in the lawsuit and respond to arguments by Content's lawyers that Paramount's counterclaims came too late and insufficiently stated facts to support its allegations.

In advance of the hearing, the judge has tentatively ruled that the counterclaim is sufficient and not barred by the statute of limitations. But the judge does want more. He's allowing 20 days for Paramount to amend the complaint, recommending that JPMorgan be joined as a cross-defendant as an alleged co-conspirator. Sources tell THR that the studio is prepared to follow through on this. Viacom publicly states that no firm decision has been made.

The basis for Paramount's conspiracy charge dates back to the mid-1990s, when banks began lending to studios in exchange for a portion of a film's future proceeds. To hedge risk, banks also purchased insurance whereby insurers would repay any loan amounts that remained outstanding after a picture's release.

"Like many Wall Street schemes, JPMorgan's attempt to craft 'risk free' loans to finance motion picture production proved too good to be true," said Paramount in court papers filed in June. "Before the ink was dry on the Fifth [Revenue Participation Agreement], JPMorgan came to the realization that the insurers might not make good on their policies."

From 2000 to 2004, JPMorgan was involved in litigation in New York and the United Kingdom with insurers over insurance-backed loans. Around that time, the bank attempted to get Paramount to "buy out" the participation agreements, and in order to drive the price up, the bank allegedly conducted a financial audit that resulted in an attempt to show the studio was incorrectly calculating "crossing" amounts, which pertains to the amount of net receipts after Paramount had recouped its direct costs for the pictures.

JPMorgan and Paramount came to no deal. Instead, JPMorgan is said to have reached a secret arrangement with Content Partners.

"However, they were faced with a predicament," said the counterclaim. "JPMorgan and Content Partners knew that, under the express terms of the Revenue Participation Agreements, their transaction could not be consummated without Paramount's consent. But they also recognized that Paramount would never consent to an assignment of rights under the Revenue Participation Agreements to a 'scavenger' that was intent on pursuing baseless claims and bad faith litigation against Paramount."

"JPMorgan purported to substitute itself as 'debtor' under the Loan Agreements … and transferred the position as purported 'lender' under those Loan Agreements to Content Partners."

Having gained financial position into Paramount's films, Content Partners filed a lawsuit in 2010 and it alleges that on 25 of its films, Paramount failed to comply with cross-collateralization provisions of agreements.

Content's lawyer Marty Singer objected, asserting that the studio was making a move merely to frustrate his client's right to petition for its rights. Saying it was the "most absurd thing" he had ever seen, Singer filed a demurrer and motion to strike.

In a tentative ruling issued before Tuesday's ruling, the judge denies the statute of limitations defense, pointing to Paramount's argument that "it did not discover the facts giving rise to the concealment until months after this action was filed and it undertook discovery."

The tentative order gives Paramount 20 days to amend the counterclaim to include JPMorgan and says the motion to strike is moot. The judge notes, "The basis of the claim is concealment based upon a failure to disclose the alleged assignment of claims to Content when Content had an affirmative responsibility to notify Paramount, and, under the terms of the contracts, a responsibility to obtain permission prior to making assignments."

Source.... http://www.hollywoodreporter.com

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Paramount Threatened with Prosecution Over Conspiracy

Responding to Paramount's allegations of a financial conspiracy, Hollywood power lawyer Marty Singer has a warning for investors: "If co-financiers want to make deals with Paramount, this is what is going to happen."

Marty Singer, the attorney representing Content Partners in a huge lawsuit against Paramount over alleged profit participation cheating, tells The Hollywood Reporter that he will be looking to file malicious prosecution claims against Paramount and its attorneys.

On Thursday, as THR reported earlier, Paramount filed counterclaims in a three-year-old lawsuit that alleged that JPMorgan colluded with an asset management company to interfere with the studio's rights in a series of film-financing transactions. The court papers say that JPMorgan provided insurance-backed financing for a slate of late 1990s film and after realizing that the loans weren't risk-free, came to a secret arrangement with Content Partners.

"In last two months, we've uncovered approximately $100 million that hasn't been reported," he says. "In response, they filed this absurd, ridiculous cross-complaint that we believe will subject Paramount and its attorneys to malicious prosecution."

Singer says he's been practicing law for 35 years. "This is the most absurd thing I've ever seen," he says.

He says that Paramount has known about the transaction between JPMorgan and Content Partners for years. "We have documentation," says the attorney, adding that Content Partners was a competitor when Paramount engaged in negotiations to buy back financial participation on hit films like The Truman Show, Face/Off and Runaway Bride. The suggestion of a conspiracy is an "absolute lie," says Singer.\
He says that even if Paramount is correct with its new allegations, the studio won't be able to recover money, as the funds would then be due to JPMorgan.

"This is chutzpah," says Singer. "It would be like someone robbing a bank and then suing the victim."

Not stopping there, Singer issued a warning to any financier who would do business with Paramount.

"I think for co-investors, this is an important wake-up call.

Read  the third amended complaint... http://www.scribd.com/doc/146354943/Content-Partners-3rd-Amended-Complaint

Read More... http://www.hollywoodreporter.com/thr-esq/paramount-threatened-malicious-prosecution-conspiracy-564762

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Paramount Lawsuit for Stolen "Paranormal Activity 4"

Filmmaker Michael Costanza claims the studio and two producers used concepts he submitted in 2010 for the hit 2012 horror movie,  claiming that the film used specific concepts from his work without permission and without credit or compensation.

Costanza, who directed and wrote the 2002 independent horror film The Colllingswood Story, argues in a suit filed Wednesday in Los Angeles Superior Court that in 2010 he submitted material from that film in a pitch meeting with the producers. The material included details of webcam chats by characters in their late teens.

Costanza says he was told at the time that producers Steven Schneider and Spencer Medof were not interested in his concepts or in making a film based on his Colllingswood script, which he had registered with the Writers Guild.

He now says that the story he wanted to tell is almost identical to what was later used in Paranormal Activity 4, which was released in  2012. That movie cost about $5 million to make and has grossed more than $138 million worldwide.

Costanza is suing for unspecified damages and an order forcing the defendants to destroy all materials based on his concepts.

Read More... http://www.hollywoodreporter.com/thr-esq/lawsuit-claims-paramount-stole-paranormal-445926

Paramount Wins Again in Investor Dispute Over Tommy Lee Jones Payout

An appeals court confirms that the studio didn't breach fiduciary duty by deducting bonus money that an arbitrator ordered the studio to pay on "No Country for Old Men."

A California appeals court has affirmed Paramount's win in a legal dispute with a Morgan Stanley-backed film finance entity that alleged it was forced to pick up some of the tab when one of the studio's outside lawyers made a mistake on Tommy Lee Jones' bonus payments on No Country for Old Men.

The mess happened when an attorney for Paramount mistakenly drafted an agreement to provide bonuses for Jones, Scott Rudin and Joel and Ethan Cohen once worldwide box receipts, when multiplied by two, reached a level prescribed for domestic office bonuses. Once the error was realized, Rudin and the Cohen Brothers were nice enough to amend their contracts to what was agreed upon in early deal memos. Jones resisted, going to arbitration against Paramount, which was then forced to pay out a $17.5 million box office bonus to the actor.

Paramount then deducted a $2.45 million charge from Marathon Funding. The finance entity cried foul, suing the studio for breaching fiduciary duty. In late 2011, a L.A. Superior Court judge denied the claim, and on Monday, California's Second Appellate District confirmed Paramount's victory. Here's the full ruling.

Marathon held a 25 percent share of the copyright on No Country for Old Men, which won Best Picture at the 2008 Oscars and earned more than $171 million at the box office worldwide.

The finance entity alleged that Paramount had breached its fiduciary duty by failing to catch the contract drafting error, by not notifying Marathon of it, by rejecting Jones' $3 million settlement offer, by not pursuing a legal malpractice claim against one lawyer (beyond the $2.75 million recovered in a settlement with the outside lawyer's firm) and by not disclosing why it had deducted the money on an accounting statement.

But before any of this could be addressed, a judge first had to determine whether there existed any fiduciary duty in the first place. Here, Marathon failed to overcome two big hurdles.

First, a judge applied New York law rather than the more favorable California law towards asserting a fiduciary relationship.

Even though Paramount is based in California, and Marathon's lawsuit was filed there, the agreement between the parties chose New York law as governing, and an appeals court further writes, "Marathon's principal place of business is in New York state, as is the parent company of Paramount, Viacom, Inc. Thus, there is a substantial relationship between the parties and New York."

Second, Marathon had to overcome the fact that the agreement explicitly disclaimed that Paramount was Marathon's fiduciary.

Since New York law was being applied, Marathon would have to meet various requirements on a joint venture with fiduciary duty including intent and control.

"Nothing in the investment agreement shows the intent to create a joint venture," writes the appeals court. Besides the explicit disclaimer, the appeals judge adds, "The investment agreement also expressly deprives Marathon of any control whatsoever concerning the covered pictures."

Read More... http://www.hollywoodreporter.com/thr-esq/paramount-prevails-tommy-lee-jones-426039

Universal, Paramount's Brad Grey at War Over $50M in 'Sopranos' Profits

Arbitration has begun over whether Grey, who executive produced the HBO mob drama, must split revenue with the NBCUniversal-owned studio. Universal has put a hit out on Brad Grey for allegedly not sharing $50 million or more in profits from The Sopranos.

NBCUniversal-owned studio has filed a confidential arbitration claim against the Paramount chairman and CEO for failing to honor a 50-50 profit-sharing arrangement on the hit HBO series. Grey, who was a principal at the Brillstein-Grey management/production company before taking the reins of Paramount, executive produced on the long-running mob drama and is believed to have earned tens of millions of dollars from its success.

Universal in 1996 bought half of Brillstein-Grey, but divested its interest in the company in 1999. At the time, sources say the studio and Grey entered into a separation agreement that divvied up rights to several TV projects in development. Sopranos was one of those projects, and Universal is arguing that the separation agreement entitles it to split Grey's profits from the show.

Grey is said to have been paid $50 million or more in revenue from HBO, which could entitle Universal to $25 million or more if it is successful in the arbitration. The claim was filed in December, according to sources.

The dispute is a holdover from Grey's pre-Paramount life as a top manager and producer. Still, it's extremely rare for a top Hollywood executive to be targeted in such a way by a rival studio. Making matters more noteworthy, Grey and Universal COO Ron Meyer are said to be close friends.

The legal dispute had been brewing for some time, but Universal escalated the fight in December, hiring litigator Daniel Petrocelli at O'Melveny & Myers to initiate the arbitration proceeding. Grey has hired Evan Chesler at the white-shoe New York law firm Cravath Swaine & Moore to handle the case.

Read More... http://www.hollywoodreporter.com/thr-esq/universal-paramounts-brad-grey-at-421724