Appeals Court Stops Paramount from Suing 'Mean Girls' Investors

Mean Girls Still - H 2016
Courtesy of Photofest

Mean Girls Still - H 2016

The long court battle over several Wall Street firms that claimed being defrauded by Paramount Pictures could finally be drawing to a finish, thanks to a New York appeals court decision on Thursday.

All the way back in 2008, Allianz Risk Transfer, Marathon Structured Finance Fund, Newstar Financial and Munich Re Capital Markets filed a federal complaint alleging they hadn't seen any profits on the $40 million they put up for the "Melrose 1" slate of films that included Mean Girls, Elizabethtown, Collateral, The Manchurian CandidateCoach Carter, Team America: World Police, The Stepford Wives, The Longest Yard and AlfieThe dispute finally went to trial in October 2014 where the plaintiffs aimed to prove that Paramount had made misrepresentations by allegedly hyping risk-mitigation practices and then abandoning international "presale" agreements in favor of self-distributing pictures in foreign markets.

In the middle of the trial, a judge stopped it and gave the film studio the victory, declaring, "Paramount was not hiding its business practice to the plaintiffs, it was disclosing them.”

But then, Paramount turned around and filed a complaint against the investors in state court for allegedly breaching a covenant not to sue. The studio aimed to be reimbursed for $8 million in legal fees it had expended in the long-running fight.

On Thursday, an appeals court overturns a New York Supreme Court judge who rejected the investors' motion to dismiss. The appellate judges essentially rule that if Paramount had a claim under its subscription agreement with the investors, it was obligated to pursue this in the prior case. According to the opinion, "Despite the parties' arguments to the contrary, we find that plaintiff's claim for breach of the covenant not to sue is a compulsory counterclaim under the Federal Rules of Civil Procedure (FRCP) rule 13(a)."

Because its claim in state court constituted something that Paramount had opportunity to litigate in a prior federal action, it's deemed as "barred under the doctrine of res judicata," meaning a matter that has already been adjudicated.