12:49pm PT by Eriq Gardner
Investors Attack How Paramount Calculates Damages in Film Finance Lawsuit
Quite possibly, Paramount Pictures will be going to trial to defend claims made by Wall St. investors who say they put up $40 million for a slate of films only to see no return. If such a trial takes place, the investors don't want the studio to bring forth an expert who would testify about what would have happened if the investors kept investing in Paramount films.
The lawsuit concerns a a film slate known as "Melrose 1," 25 films released between April 2004 and March 2006 that included Mean Girls, Elizabethtown, Collateral and remakes of The Manchurian Candidate, The Stepford Wives and Alfie.
Allianz Risk Transfer, Marathon Structured Finance Fund, Newstar Financial and Munich Re Capital Markets allege that Paramount committed fraud by concealing an intention to abandon its historical practice of preselling distribution rights for movies in foreign territories. Paramount is looking to have the lawsuit dismissed on the grounds that the investors agreed to legally binding waiver and release provisions and haven't identified any false statements in the procurement of the investors' money.
A federal judge in New York hasn't yet ruled on whether the lawsuit will go forward but it's not stopping the plaintiffs from looking to preclude certain evidence at the potential trial. In a memorandum filed on Monday, the plaintiffs attack "discovery gamesmanship" on Paramount's part, specifically evidence supposedly introduced shortly before the discovery window closed.
The investors say their own expert has calculated damages on those 25 films to be approximately $18 million, and as a rebuttal, Paramount's expert Robert Wunderlich began accounting for films beyond the last film in the slate — Mission Impossible 3 — to wipe out any damages owed.
The plaintiffs say that Paramount is arguing for the relevancy of an additional 12 films because of what would have happened if the plaintiffs had invested proceeds from "Melrose 1" back into Paramount. Had these investors continued investing, they would have been part of "Melrose 2," a slate of 29 films including some of the movies in the the Transformers series, which instigated a separate investor fraud lawsuit, which has since been settled.
"Based upon Paramount's calculation, by compelling Plaintiffs to continue investing in the Additional Films, Plaintiffs would conveniently have lost all their money and there would be no damage as a result of Paramount's fraud," says a memorandum in support of a motion to preclude.
The problem, say the plaintiffs, is that they originally wanted to do discovery on a wider set of films (since among other things, they didn't know exactly what they were getting when they put up money) but Paramount resisted those demands. The plaintiffs now say that they were blindsided when the later films came up in depositions and in the studio's expert report on damages.