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."

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