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Lawsuit Over Fox's 'Chipmunks' Films Expands

A judge won't dismiss a claim over a $3 million producer payment and is allowing a new one over how "The Squeakquel" was licensed to HBO.

"Alvin & the Chipmunks"
Courtesy Twentieth Century Fox

The family that owns rights to Alvin and the Chipmunks has defeated a Fox motion that would have trimmed its lawsuit over the enormously successful Squeakquel. Instead of contracting the claims, a judicial referee is allowing the plaintiff to expand the scope of the lawsuit.

Bagdasarian Productions, run by Ross Bagdasarian Jr. (whose father created the franchise in 1958), has been fighting with Fox for years over the hit film which grossed more than $443 million at the box office.

The lawsuit covers a lot of ground.

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For instance, Janice Karman, Bagdasarian's wife, alleges she wrote a 33-page treatment for The Squeakquel screenplay, and contributed scenes and dialogue that she says constitutes a substantial portion of the final screenplay. As such, it's asserted that she's a co-owner of the final script and entitled to half of all profits attributable to the screenplay.

Then, there's a claim that Fox has breached a "producer agreement." The family's deal with Fox allegedly entitled them to a $3 million rights purchase payment and 2.5% of first dollar gross on the pic. The plaintiffs said that Fox claimed the $3 million was an advance against gross rather than a payment in addition to gross.

On Tuesday, a retired judge who has been tasked to be a referee in the dispute denied Fox's motion for summary adjudication on the "purchase price" claim, waiving off much of the studio's evidentiary objections and saying that resolution can't be made "because there are questions of fact relating to the interpretation of the parties agreement."

Bagdasarian also asked for the opportunity to amend its lawsuit with new allegations.

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Most important is an allegation concerning Fox's licensing of the film to HBO. The claim is that Fox has allowed the film to be licensed to HBO under an output arrangement with its co-financing partner, Regency, for less money than Fox and Bagdasarian would have received had the film been licensed to HBO under Fox's own HBO output arrangement. Fox allegedly allowed this to happen in exchange for benefits from Regency.

Fox argued that the proposed breach of contract claim for discrimination in licensing was futile because all profit participants on the movie (including Fox) had diminished revenue, but the referee is allowing it to go forward.

"Resolution of this claim will depend on the interpretation and application of the Agreement's language that 'Fox exercise its business judgment in a 'reasonable and non-discriminatory manner,''" says the referee.

The referee is also allowing Bagdasarian to add a claim for underpayment of royalties relating to the film's soundtrack,over an objection by Fox that it was agreed upon by the parties that such claims could only be brought against Rhino Records. Fox's objection fails because of language in the contract where the studio agreed to "use its reasonable efforts to cause the Record Company to account for and pay the Soundtrack Royalty directly to Owner."

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Fox does, however, avoid several proposed new claims including one for breach of implied covenant of good faith and fair dealing and another for unjust enrichment.

Most importantly for the studio, Bagdasarian's attempts for a rescission on the contract are deemed unwarranted. The plaintiff asserted that if a judge or jury deemed its interpretation of the contract to be invalid, the agreement was rescindable due to "mutual mistake." Fox argued that Bagdasarian's unilateral misinterpretation of contract terms couldn't be the basis for such a rescission.

The referee agrees with Fox, saying that "any alleged 'misunderstanding' by the parties does not equate to a mistake as that legal term is used."

Fox might be liable for alleged breaches of contract, but if it prevails on its interpretation of the contract, there won't be any risk of canceling out a deal that has produced one blockbuster after another, from Fox's original film in 2007 to Squeakquel in 2009 to Chipwrecked in 2011. There are even some reportsthat a fourth film for the franchise is in the works.

E-mail: Eriq.Gardner@THR.com
Twitter: @eriqgardner