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In 2013, Warner Bros. released a horror film, The Conjuring, that surpassed all expectations with warm critical reviews and more than $318 million in worldwide box office. Ever since, the studio has been locked in a multi-pronged legal war with one of the film’s producers, Tony DeRosa-Grund, who tried to license a Conjuring television series to Lionsgate and would later claim that Warner Bros. committed racketeering, money laundering and other offenses in connection with the way that rights to the property about real-life paranormal investigators Ed and Lorraine Warren were acquired and financial participation was paid out.
As Warners put the wheels in motion for sequels, DeRosa-Grund has suffered a series of setbacks in his legal campaign, but on Jan. 22 came a true shocker in the form of a startling ruling in Texas bankruptcy court of all places. There, Warner Bros. was determined to have never held proper title to a story treatment for the first film.
But don’t count this as much of a win for DeRosa-Grund, either. After grudgingly reopening a bankruptcy case that’s been shut for more than five years, and priming the way for a new sale of that Conjuring story treatment, U.S. bankruptcy judge Jeff Bohm bars DeRosa-Grund from ever benefiting from disposition of the treatment and says he will be referring him to the U.S. Attorney for the Southern District of Texas for investigation.
“Like the poker player in the old Westerns who gets shot for his cheating ways, the Debtor here has cheated the bankruptcy system and will now suffer the consequences,” writes the judge. “The Debtor’s conjuring up various and sundry explanations to justify his lengthy nondisclosure of the Treatment could cost him dearly in cash and might cost him dearly in his freedom.”
The story of how Warners got to make The Conjuring dates back to 2009, when DeRosa-Grund was thrown into involuntary bankruptcy. There, he tangled with the famous poker player Phil Gordon over hundreds of thousands allegedly due from an ill-fated poker TV show that the two worked on. One of DeRosa-Grund’s most valuable assets at the time was rights he had acquired to adapt old case files from the Warrens — who he had befriended in the 1990s — including investigations into a demonic Raggedy Ann doll that terrorized a family and a single mother whose children kept witnessing strange things at home.
DeRosa-Grund had gathered some studio interest, but it was Warners‘ subsidiary New Line that came along in the bankruptcy process to take rights. The studio made a $100,000 deal with the Trustee and further agreed to pay nearly a million dollars more to DeRosa-Grund’s companies for quitclaim and producer loan-out agreements.
Years later, around the time that The Conjuring came out, DeRosa-Grund argued that what New Line had purchased was limited in scope, was a small portion of case files that didn’t cover proposed sequels, that a $750,000 check that Warner Bros. aimed to deliver him for a sequel titled Annabelle was insufficient, that Warners was infringing copyrights and that the studio had a pattern of misbehavior that amounted to racketeering.
For all this, though, DeRosa-Grund couldn’t escape arbitration, and on Feb. 4, 2015, a JAMS arbitrator determined that the rights he reserved were narrow and limited, that any rights acquired by him under the Warren agreements were the sole property of New Line, that he had no right under the agreements to be attached as producer to any sequel or spinoff, that he wasn’t entitled to more money from Annabelle beyond $750,000 and also that he had to pay more than $150,000 to New Line for breaching the implied covenant of good faith and fair dealing.
As DeRosa-Grund appealed, plus brought new legal actions against his adversary, he went back to the bankruptcy court in September with a request to reopen the case. He sought to amend a schedule of assets belonging to the estate. Specifically, he told the judge that the copyright to a motion picture treatment was “inadvertently omitted.”
Naturally, this set off Warner Bros.
“Now that the movie The Conjuring has generated hundreds of millions of dollars in profits and TDG and the TDG Companies have lost a JAMS arbitration over the rights to The Conjuring project, TDG has done an about-face, claiming that he personally owns the Conjuring Treatment, presumably hoping that he can use the bankruptcy process to avoid the JAMS decision and recover any surplus after the claims in his bankruptcy estate are satisfied,” the studio said.
Judge Bohm heard testimony about this for four days in early December.
There, DeRosa-Grund described the genesis of the story treatment. In one of his conversations with Ed Warren, the paranormal investigator had played a tape of an interview between himself and Carolyn Perron, whose family and haunted farmhouse in Rhode Island became the basis of the film. Warren played the interview, and stopped at various points to add commentary. DeRosa-Grund says during the conversation with Warren — which was also taped —”a light bulb really went off,” and DeRosa-Grund spent about 20 minutes explaining how this could be a movie — “the story, the start, the finish, the first act, middle, the ending.”
Later listening to the tape, DeRosa-Grund wrote a treatment.
At the December hearing, DeRosa-Grund was asked why he didn’t disclose the treatment, and the judge says he answered, “Because I didn’t have a registration in it, sir,” and further, “I didn’t think it had any value.”
At some point, DeRosa-Grund discovered that the film used more of his treatment than what he had been expecting. He testified, “[A]t least 60-65% of that story [for the screenplay of The Conjuring] if not more, is from my treatment … I shut my mouth up till now to get this [movie] made, but no more. All bets are off … No more Mr. Nice Guy, no more patience. No one rips me creatively or otherwise. So I’ll just sue everyone here because I have had enough of being defrauded and now screwed with. See you in court.”
The bankruptcy judge concludes that DeRosa-Grund isn’t a very credible witness, writing that his “own language thus shows that he had a motive to conceal the Treatment from his creditors.”
Bohm adds, “Even if the Debtor did not believe the Treatment had any value on July 10, 2009 [the date that he listed his assets] — and the Court does not believe the Debtor’s testimony on this point — there is no question that the Debtor believed the Treatment had value as of October 7, 2010, when he sent his hostile email to New Line’s senior vice president threatening to file suit because New Line would not pay him for ‘my Treatment.’ One simply does not threaten to sue someone else for alleged theft of one’s work unless one believes that this work has value.”
All this, plus DeRosa-Grund’s failure to make an earlier motion to reopen the bankruptcy case upon, as the judge puts it, his “Ah Hah” moment, his not doing so until after he lost arbitration and couldn’t push though a settlement with Warner Bros. during the appeal, leads the judge to hand down a horrific penalty — not just barring him from any financial enjoyment of the treatment, but also potential referral to law enforcement authorities.
“Sir Walter Scott’s observation is unquestionably applicable to the Debtor,” writes the judge. “Oh what a tangled web we weave, when first we practice to deceive.”
As for Warner Bros., the studio argued that it did purchase the story treatment by virtue of the various agreements it made with DeRosa-Grund and the Trustee. The judge rejects this assessment in part by pointing to an email dated Oct. 7, 2010, where one of New Line’s executives wrote to DeRosa-Grund, “I’m afraid I can’t buy your treatment. I don’t think the writers ever saw it, and it would not be fair to them to introduce that into the credit determination.”
Bohm writes, “Because this Court has never approved a sale of the Treatment to New Line, this Court finds that New Line has never taken title to this asset and that this asset remains property of the Estate.”
So what does this mean? The answer isn’t simple. Warner Bros. has taken the position that the treatment doesn’t hold any value regardless, but DeRosa-Grund obviously disagrees because he’s filed a copyright infringement lawsuit that’s based off of what the studio allegedly used from the treatment. That asset will go up for sale, and theoretically, the buyer would win the right to participate in a lawsuit over a $300 million film. One where showing access to the copyrighted work may not be such a challenge. Then again, copyright suits are always hard for plaintiffs to win, and this one is bedeviled by a nightmarish legal trail, including what happened in arbitration.
As for DeRosa-Grund, he may seek a motion for reconsideration on the basis that both the Trustee and Warner Bros. knew about the treatment, and thus it couldn’t have been fraudulently concealed.
There’s also money implicated as Warners has deposited $750,000 for a sequel to The Conjuring into a court account and brought a separate interpleader action meant to have DeRosa-Grund and poker star Phil Gordon fight over who is entitled to it. This week, Warners told a judge in that case that it intends to seek clarity from Bohm about the impact on the adjudication of the money.
Warner Bros. is set to release The Conjuring 2 in June and can’t help taking some delight in what’s happened. Asked for a comment, the studio responds, “New Line expects no adverse impact on The Conjuring franchise from the Bankruptcy Court’s ruling, which clearly and unequivocally sets out the fraud that Mr. DeRosa-Grund has perpetrated on both New Line and the Court.”
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