June 26, 2012 8:58am PT by Eriq Gardner
Movie Investors Sue Over 'One of the Greatest Box Office Flops of All Time'
Any lawsuit that opens by touting a "staggering" fraud on "one of the greatest box office flops of all time" has quite a bit of work to do to live up to such damning words. The investors now suing over the 2009 film Transylmania believe they can make a strong case in describing the horrors.
Forget the fact that of the thousands of films rated for critical consensus by Rotten Tomatoes, less than 10 have a score of "0." Transylmania is one of them. And never mind the fact that when the film opened on 1007 screens in 2009, it had a per screen average of $262 according to Box Office Mojo, which is said to be the worst performance for any wide release ever recorded.
The real question is how is it possible that sane individuals would loan nearly $22 million to the producers of this dud? Witness a lawsuit filed on on Monday in Los Angeles Superior Court.
The plaintiffs in the case are Third Eye Capital Corporation and Strative Capital.
The investors are suing various defendants including Hill & Brand Productions and the directing team of David Hillenbrand and Scott Hillenbrand.
According to the complaint, the Hillenbrands began soliciting the plaintiffs to finance the print and advertising costs of Transylmania (aka Dorm Date 3) in 2009. The film was described to them as the first "vampire spoof" in the marketplace that would be successful because of the mania surrounding Twilight. The movie was also held out as poking fun at True Blood, Van Helsing, Dracula and Young Frankenstein.
But the plaintiffs suggest that the film wasn't really a spoof at all -- that it was just a marketing ploy, perhaps one to suck cash.
The Hillenbrands allegedly represented that they had financed the film themselves with an equity base of $5 million. They purportedly came to the negotiating table with market research by Nielsen National Research Group showing audience reviews that were better than that of a studio film with a major star. The brothers also supposedly spoke how the top entertainment law firm of Mitchell, Silberberg and Knupp was already "closing" initial P&A, that they were in negotiations with Paramount for library titles (including previous Dorm Date films), that ancillary markets like pay-per-view and video-on-demand were being worked out, that there might be more than $3 million in foreign sales, and that they had assembled a team at First Circle Releasing who would be capable of doing their own domestic distribution for a small "flat" fee instead of a percentage of gross.
Sound too good to be true?
The plaintiffs say they bought into this and, in July 2009, after a meeting in Toronto, agreed to a loan agreement of $11,745,000 to finance P&A, plus an optional $2 million increase, in return for movie revenues going to pay the loan, plus interest and fees, with the library titles being used as collateral.
Then, allegedly came the requests for more money.
In September 2009, the Hillenbrands asked for an additional $2 million, citing competition from another film (Armored), media buy opportunities, and the possibility of "huge" network endorsements.
More requests came, allegedly tied with a focus on the film's "awareness levels." The filmmakers are said to have wanted to achieve a 75 percent awareness level and spoke about plans to have a trailer used on the Zombieland DVD and a "more strategic deal" with Sony Home Entertainment.
That November, the parties allegedly agreed to an Omnibus Amendment, which provided for a $6 million increase in the loan commitment.
In total, during the final six months of 2009, the plaintiffs say they advanced $21,745,000.
The film came out and was savaged by critics. Mike Hale of the New York Times wrote that it was "destined to spend a short and painful life in theatres and then join the ranks of the DVD and late-night-cable undead." Steven Hyden of The Onion said that "Transylmania is such a colossal comedic misfire that it makes the execrable Scary Movie films look like masterworks of Preston Sturges-esque genius by comparison."
The film made less than $400,000 at the box office whereafter the plaintiffs notified the Hillenbrands they were in default due to the material adverse change in their financial standing. The borrowers are said to have resisted, saying that the film would have been successful if the lenders had put up more P&A funds. The lenders got a mere $100,000 on their $22 million investment and say their efforts to do an accounting investigation were frustrated by the hold-back of documents.
Still, the accounting firm hired to do the autopsy of this disaster allegedly turned up evidence of fraud, including that some of the money from the P&A loan went to pay personal credit card bills, traffic tickets, and to friends, family and the Hillenbrands themselves as "loan repayments."
The complaint provides no explicit word of whether the plaintiffs actually saw the film before they agreed to put up more than $22 million. But there's a strong indication that they hadn't. For example, the lawsuit says:
"Ultimately, Lender learned that the Film was not a 'vampire spoof' poking fun at Twilight or True Blood. Despite all of the representations provided to the contrary, the Film had nothing to do with Twilight or True Blood. As such, all of the projections and financial analyses regarding Twilight and past spoof films were pointless."
Might the plaintiffs deserve some blame for not taking a couple hours to actually confirm this for themselves before putting up the money?
Regardless, the plaintiffs are now suing for breach of contract, fraud, negligent misrepresentation and are seeking nearly $22 million in damages and want personal property, compensatory damages and legal fees. They are represented by Ronald Sittler at Blank Rome.
Kim Swartz, an attorney at Mitchell Silberberg representing the Hillenbrands, gave us the following statement in response:
"This is a completely meritless lawsuit. The plaintiffs saw the finished film numerous time before they chose to invest. In any event, David and Scott Hillenbrand and their team of top professionals did everything they could to try to get their investors a return o ntheir investment, even to the Hillenbrands' own financial detriment, and, as stated in the Complaint, in spite of the plaintiffs' failure to provide the agreedup P&A funds in a timely manner. The Hillenbrands look forward to having the plaintiffs' completely meritless claims dismissed and to prosecuting their own claims."