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Hollywood dealmaking has failed to save the industry’s top talent from a studio’s bankruptcy.
That’s the lesson from a precedential opinion out on Friday from the 3rd Circuit Court of Appeals, which reviewed what happened after the downfall of Harvey Weinstein. Unfortunately for many stars, millions of dollars in compensation from hit movies now seems all but lost forever.
After Weinstein was credibly accused of sexual misconduct, his eponymous company filed for bankruptcy protection. Then in early 2019, Spyglass Media (then called Lantern) came to a deal to acquire most of Weinstein’s assets for $289 million. But did Spyglass first have to pay Weinstein’s old debts before taking over contracts that would give them rights to many films and TV shows? That’s what Hollywood’s creatives including Bradley Cooper, Jennifer Lawrence, Robert De Niro, Meryl Streep, Bill Murray and Julia Roberts insisted.
Spyglass felt otherwise. According to the company, these contracts weren’t executory, meaning that obligations from the parties had already been substantially performed. The debts didn’t transfer in the Weinstein bankruptcy sale. To confirm it, Spyglass brought a test case against Silver Linings Playbook producer Bruce Cohen, who got 5 percent of the celebrated movie’s net profits and was owed $400,000 at the time of the bankruptcy.
Now comes yet another victory for Spyglass — and barring any rehearing by the 3rd Circuit or intervention by the Supreme Court, this one could become the final determination.
“At a high level, the essence of the Cohen Agreement was for Cohen to produce the Picture in exchange for money,” writes Circuit Judge Thomas Ambro. “Thus, he contributed almost all his value when he produced the movie. At the time of TWC’s bankruptcy, the Picture had been released for six years and Cohen had not done any further work on it.”
Cohen’s remaining obligations like indemnification were “ancillary after-thoughts in a production agreement,” Ambro adds.
OK, but what about the money owed? Surely, paying up is a material obligation of the contract.
Ambro responds by rolling through the distinction between a covenant and termination provision before ultimately concluding, “If we accept Cohen’s argument, then the parties also overrode protections in the Bankruptcy Code. … Here, the logical implication of Cohen’s position is that the Cohen Agreement would be an executory contract forever, no matter how much he has already performed. That would be a highly unusual result and would contravene the protections created for the Debtors by the Bankruptcy Code.”
The appeals court decides the $400,000 in contingent compensation owed to Cohen does not need to be paid. The same is almost assuredly true for others involved in Silver Linings Playbook, including Bradley Cooper and Robert De Niro, although Spyglass will have to pay any net profits the movie makes from here on out. But as for what was lost, Ambro writes, “This pill is bitter to swallow, but bankruptcy inevitably creates harsh results for some players.”
Separately, Spyglass won a separate appeal today against Weinstein’s old investors.
Here’s the ruling in the Cohen case.
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