Paramount Beats Movie Investors' Fraud Claims at Trial (Exclusive)

A 6-year-old case over money from 'Mean Girls' and 24 other films comes to a conclusion after a judge stops the fight
'Mean Girls'

After a week's worth of trial proceedings, U.S. District Judge Katherine Forrest has heard enough and has issued a decision in favor of Paramount Pictures in a long-running case over its "Melrose 1" film slate.

A number of financial institutions including Allianz Risk Transfer, Marathon Structured Finance Fund, Newstar Financial and Munich Re Capital Markets claimed in a 2008 lawsuit they had been defrauded on 25 films released between April 2004 and March 2006, including such releases as Mean Girls, Elizabethtown, Collateral, The Manchurian CandidateCoach Carter, Team America: World Police, The Stepford Wives, The Longest Yard and Alfie. The investors said they hadn't seen any return on the $40 million they put up as part of a $231 million package to fund those films.

Specifically, the claims tested whether Paramount had made misrepresentations to the investors by abandoning international "presale" agreements in favor of self-distributing pictures in foreign markets. The investors said they had no idea that the film studio was stepping away from allegedly hyped risk-mitigation practices, and that had Paramount been up-front about this, they wouldn't have suffered losses. The investors looked for a return of the value of their investment.

"It's the absence of presales that's key in this case," plaintiffs' attorney James Janowitz reportedly said during opening arguments.

"This business is an unpredictable business because, as any movie executive well knows, you can think on Thursday that you've got a hit and on Friday night, when you get the returns, find out that you were wrong," Paramount attorney Richard Kendall told the judge during the bench trial.

There was much drama in the days running up to the lawsuit. which was filed at a time when Wall Street money poured into Hollywood. But after a financial crisis, things changed. The lawsuit sat on the court docket for six years as the parties participated in discovery. U.S. District Judge Thomas Griesa denied the studio's motion for summary judgment earlier in the month, and just before trial, he was replaced by Judge Forrest, who agreed to bifurcate the trial into liability and damages.

After both sides offered witness testimony and experts, Paramount came forward to argue that it wasn't the maker of any misleading statements about presales, and that the plaintiffs were having trouble identifying what the misrepresentations were.

Paramount brought a motion that gave the judge the right to render a decision after she heard the evidence on plaintiff's side, and Judge Forrest decided to deliver a judgment on partial findings. She found there were no false statements and stated that it wasn't even a close call.

“The Court does not find credible that all of these highly sophisticated businessmen having information as to the co-financing levels at their disposal pre-investment would have ignored it if they truly cared about it," she stated. "Paramount was not hiding its business practice to the plaintiffs, it was disclosing them.”

The full transcript is below.

As a result, the studio prevails in one of the industry's oldest cases. "We are gratified by the decision," says a Paramount spokesperson.

Janowitz says he is exploring all options for an appeal.

Email: Eriq.Gardner@THR.com
Twitter: @eriqgardner

Updated 10/31 10:00 AM Judge's comment and transcript added

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