Paramount Strikes Back at Melrose 2 Finance Partner (Exclusive)

Paramount Pictures wants a dispute over whether the studio underreported millions of dollars in revenue in accounting statements to take place in a New York federal court.

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On Wednesday, Paramount sued Melrose 2, the financing entity that put up $375 million for a slate of films including Mission Impossible 3, Blades of Glory and the Transformers series. The studio is asking a judge to declare that it properly accounted for revenues and didn't make any false statements.

Melrose 2 filed its own suit against Paramount back in November, claiming that it had not seen any profits despite putting up money for films that reportedly grossed $7 billion.

In the complaint lodged in LA Superior Court, Melrose 2 showcased how the days of Wall Street money flowing freely into Hollywood  had taken a bad turn. The New York-based financing group charged Paramount with understating gross receipts, delaying payments, overstating production and distribution costs, and hindering audit rights to verify revenues and costs with the films that Melrose 2 had funded.

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Paramount's first reaction was to attack, in its words, "a lawsuit filled with hyperbole that ignores the true facts," and suggest that the "differences between the parties’ positions are relatively modest in amount."

The studio expressed confidence that the lawsuit would be resolved, but with no immediate settlement, one lawsuit has begat another.

Paramount has now filed its own lawsuit seeking declatory relief against Melrose 2, and is doing so based upon language in the 2006 financing agreement that purportedly designates New York as the forum for adjudicating disputes.

In the new lawsuit, Paramount maintains that it properly calculated money due to Melrose 2, didn't make any material false statements, and didn't commit unfair business practices. The studio also asserts that Melrose 2's claims of breaching good faith and fair dealing are duplicative of its breach of contract allegations.

As we reported two weeks ago, Paramount is also fighting investors who put up millions in the first Melrose slate. A judge recently allowed that lawsuit to continue over the studio's objections.

E-mail: eriqgardner@yahoo.com

Twitter: @eriqgardner