10:45am PT by Eriq Gardner
Discovery Attempts to Seize Rights to 'Little Couple' and 13 Other Shows
Even by Hollywood standards, the dispute between Discovery Communications and LMNO Cable Group is highly unusual. The battle features a former LMNO accountant who allegedly embezzled money, an investigation by the FBI, and a $7 million lawsuit that claims Discovery took advantage of a financial crime to "steal" the hit TLC series The Little Couple. Now, Discovery has filed counterclaims discussing a contractual mechanism that allegedly allows for it to take over ownership of 14 shows.
LMNO has produced many reality programs for Discovery including The Little Couple, Killer Confessions, Unusual Suspects, Bipolar Mysteries, Insane Bathrooms, Surreal Estate and on and on.
According to Discovery, these shows are made under co-production master agreements whereby it and LMNO split costs. The cable network giant adds, though, that under these contracts, "if LMNO was unable to finance its portion of a production budget, then for subsequent productions of that Program, Discovery could commission additional episodes, and pay all the production costs itself, but then own all rights for those episodes 'throughout the world, in perpetuity.'”
LMNO contends in its own lawsuit filed in late June that Discovery pays a flat fee for episodes and it has been victim to an accountant whose alleged improprieties include doctoring books. The producer also alleges it was extorted for more than $800,000, and that it failed to comply, leading to the events currently at hand.
"In its darkest hour … what LMNO did not count on was treachery," states LMNO's complaint. "Instead of standing by the side of its long-time business partner, Discovery saw an opportunity to enrich itself at LMNO’s expense. Working with, and using documents prepared by a criminal extortionist, Discovery chose this moment to manufacture bad faith claims surrounding the very books and records that it had received from a criminal in a scheme to steal The Little Couple television show from LMNO, and put LMNO out of business."
Discovery, represented by Scott Edelman at Gibson Dunn & Crutcher, tells a different tale.
In counterclaims filed Monday, Discovery says it got a call on its ethics hotline in late 2015 from a LMNO "whistleblower" who discussed how Discovery had been systematically defrauded. Discovery says it reached out to LMNO to obtain more information and to conduct audits of books.
"Rather than cooperate with Discovery on the audits (as contractually required) and work to quell Discovery's serious concerns, the LMNO Defendants stonewalled, delayed, and frustrated Discovery's efforts," states the court papers.
Discovery says it was later contacted by the FBI in March in an ongoing investigation into LMNO business practices. Reportedly, LMNO was recently raided by federal authorities.
Now, as LMNO fights over The Little Couple, and as Discovery has canceled contracts for many other shows including Killer Confessions, Speaking for the Dead, and Hollywood & Crime, Discovery is formally contending in court that its production partner "routinely and intentionally overstated the actual costs of production by more than 30%," which in some instances, meant that it was "deprived of profit participation."
Discovery adds that it paid LMNO over $64 million to produce the various television shows at issue. It is now asserting causes of action including that LMNO breached contracts, failed to keep fair and accurate books, committed fraud, infringed trademarks and committed unfair competition. Discovery is seeking a declaratory judgment that it now "owns all rights" to any episodes and seasons for which LMNO failed to finance its portion of production budgets. The counterclaimant is also seeking monetary damages.