October 26, 2011 2:08am PT by Eriq Gardner
'Just Friends' Financier to Recover $3.4 Million After Tax Credit Money Goes Missing
A financier of the 2005 film Just Friends, starring Ryan Reynolds, has been awarded more than $3.4 million from the film's foreign sales agent. At issue in the case was who was responsible for the financial burden when one of the film's producers absconded with millions of dollars received from a Canadian tax credit.
The lawsuit was brought by Cinezeta Internationale, which put up $9 million in equity funding plus another $9 million in the form of a revolving production loan for the making of the comedy about a man who confronts his high school crush.
In 2004, Cinezeta entered into two written contracts for the film -- a sales agency agreement with defendant Inferno Distribution and a production services agreement with Just Friends Productions and Mooseface Productions. Under the terms of the agreements, Inferno Distribution was to pay Cinezeta $7,694,100 so it could be the exclusive sales agent for the film in all territories other than the United States and Canada.
The agreement laid out how this money would be guaranteed, including presales agreements, a letter of credit, and $3.6 million worth of tax credits from the government of Saskatchewan, a prairie province in Canada.
The film was released in more than 20 international territories in 2005, but Cinezeta never received any payments in connection with the Canadian tax credits. According to details revealed by the judge's decision on Monday, a man by the name of Bill Vince is said to have "absconded" with the money and Cinezeta has been unsuccessful in efforts to recover it.
The decision doesn't go into details about what happened there, but Vince is a Vancouver film producer who died in 2008, having worked on dozens of films in his career, including The Imaginarium of Dr. Parnassus, Underworld, Saved!, and Capote.
Regardless of the details, a dispute erupted as to whether the millions of dollars in missing money should be counted as having been paid by Inferno Distribution to Cinezeta.
Inferno claimed that assignment of the tax credits reduced the amount due under the Sales Guarantee, but Cinezeta believed that the money was merely designated as "collateral" for the Sales Guarantee, and the defendant was responsible for making it up.
Reading the specific language of the contract, in reference to the assignments of the tax credits, California federal judge John Walter sides with Cinezeta's theory. According to the decision:
"The Assignment specifically provides that: 'Cinezeta acknowledges that its receipt of the Tax Credits shall be used to reduce the Tax Credit Guarantee as defined in the Guarantee Agreement." Accordingly, there would be no reduction of the amount due under the Sales Guarantee, unless and until Cinezeta actually received the Tax Credits. Indeed, the Production Guarantee Agreement provides that the only way the amount of the Saels Guarantee can be reduced are from the waterfall payments or from any payments received directly by Cinezeta."
In his partial summary judgment decision, Judge Walter refutes Inferno Distribution's argument that Cinezeta's only remedy for the non-payment is a termination of the sales agency agreement, and also rejects the defendant's side contention that the film producers didn't live up to their side of the contract by providing timely delivery of all materials per the agreement.
The judge is ordering Inferno Distribution to make up a $3,427,914.44 shortfall to Cinezeta, but isn't giving the plaintiff prejudgment interest because of Cinezeta's late written notice of the breach.
Cinezeta was represented by Greg Fayer of Fayer Gipson.