December 05, 2012 5:30am PT by Matthew Belloni
Fox Wins Major Ruling in 'Napoleon Dynamite' Profits Case (Exclusive)
Fox Searchlight has won a major victory in a multimillion-dollar lawsuit brought by the producers of Napoleon Dynamite over revenue from the hit comedy.
Napoleon Pictures, the production company behind the film, sued Fox in August 2011 claiming it was owed at least $10 million in allegedly underreported royalties and improper revenue deductions from the 2004 comedy starring Jon Heder that grossed $44.5 million domestically and developed a cult following on home video. Producers claimed that a deal negotiated at the Sundance Film Festival entitled them to a $4.75 million upfront fee plus a 31 percent home video royalty, but Fox argued that the actual negotiated royaly rate was 10 percent.
After enlisting a private judge to handle the complex issues, a trial was held in August in Los Angeles. Now, in a detailed 74-page decision issued Nov. 28 and obtained by The Hollywood Reporter, retired judge Patricia L. Collins has sided with Fox's interpretation of the contract on nine of the 11 issues raised in the suit. That means the Napoleon producers, whose $10 million claims had ballooned to as much as $20 million with interest, likely will be entitled to less than $150,000 based on a few small accounting irregularities. That's if the ruling stands. The decision is not final (the producers have 15 days to object to the private judge's ruling and can appeal if it is adopted by the Superior Court), though judges rarely alter such detailed and lengthy opinions.
"Fox Searchlight is pleased that the judge ruled that Searchlight properly accounted to the Napoleon Dynamite producer on virtually all of the numerous accounting issues challenged in this lawsuit, as explained in her thorough and carefully reasoned decision," a Fox rep tells THR in a statement. "Most important is the judge's finding that Fox properly accounted to the film's producer on home video revenues, by far the largest issue in the case."
The producers' lead litigator Marty Singer declined to comment.
Anyone interested in just how complicated movie profit definitions can be (and how the minutia of the negotiation process can come back to haunt lawyers) should check out the entire decision. (Read it here.) Well-known indie film lawyer John Sloss negotiated the basics of the Napoleon Dynamite deal at Sundance in January 2004, but the devil was in the details.
One of the core issues in the case was whether Searchlight's "Definition of Net Profits" was incorporated into the term sheet — the short-form contract that lawyers later supplement with backup details. Searchlight's definition wasn't explicitly spelled out in the core of the agreement, but it was referenced, which Searchlight lawyers argued was enough (plus it maintained that one of its executives faxed and mailed the definition to Sloss' office). The producers, on the other hand, argued that they never negotiated the definition nor saw it until after the term sheet was signed, and Sloss claimed to have made an agreement with a Searchlight exec that the producers would get a 31 percent home video royalty as some other clients had received. He claimed he never would have agreed to a 10 percent royalty.
But the retired judge, acting as a binding "referee" in this case, decided to hold the parties to the terms of the signed agreement, which she found incorporated Fox's definition. "Consequently, the Referee finds that Napoleon and Searchlight both intended, and consented, to the use of a Participation Definition governing all payment terms not otherwise stated in the term sheet," according to the ruling.
Other claims in the case were related to the definitions in the agreement (for instance, "high price sales" are video sales generally intended for rental, and Fox argued the definition on "sell-through sales" are video sales intended for purchase).
Fox Searchlight is repped by Linda Burrow and a team at LA's Caldwell Leslie & Proctor. Napoleon Pictures is repped by Singer and a team at Lavely & Singer.