Harvey Weinstein, Miramax Denied First Attempt to Halt 'Hobbit' Arbitration

The Weinsteins and Miramax want the dispute over "Hobbit" sequel profits to be determined in open court.
"The Hobbit: The Desolation of Smaug"

Upon the release of The Hobbit: The Desolation of Smaug, a legal skirmish broke out -- with Harvey and Bob Weinstein and Miramax on one hand and Warner Bros. and its New Line division on the other -- over tens of millions of dollars from the franchise. Warners has just scored a procedural victory in the ongoing dispute by ensuring an arbitrator's role at least at the outset.

PHOTOS: 'The Hobbit: The Desolation of Smaug': 7 Character Posters Straight From Middle-earth

To recap, the Weinsteins and their Miramax claim they are entitled to a percentage of revenue from the second and third Hobbit films stemming from a 1998 agreement giving up film rights to the J.R.R. Tolkien fantasy novels.

That deal promised Miramax 5 percent of the gross receipts of the "first motion picture" based on the books. The Weinsteins point out that Tolkien wrote just one Hobbit book and that Warner Bros.' unilateral decision to split the book into three films shouldn't limit their compensation to just the 2012 film. And if there's any doubt, the Weinsteins say their deal includes a MFN clause that entitles them to a payment in a manner no less favorable than Hobbit director Peter Jackson.

In response to such claims, Warner Bros. took Miramax to arbitration. The studio is insistent that the Weinsteins only get money for a "first motion picture," per the express language of the agreement, and say that Miramax had already been paid more than $90 million.

PHOTOS: 'The Hobbit: The Desolation of Smaug' Premiere Draws Peter Jackson, Orlando Bloom

But the Weinsteins want the case in open court and take a different view of the 1998 agreement. Just a week after Warner Bros. filed for arbitration, the Weinsteins sued in New York court.

That set up the battle over the battle -- whether the dispute would play out in arbitration as Warner Bros. wants or in state court as the Weinsteins demand. The answer is tricky. The 1998 agreement contains a forum selection provision for New York court as well as an arbitration provision, depending on what kind of dispute is at issue. But the determination could be important as these sorts of procedural fisticuffs give judges and arbitrators an early reason to interpret the contract at hand.

Here, the Weinsteins were so insistent that the dispute be adjudicated by a New York judge that they boycotted the Warners-initiated arbitration and sought an order from New York Judge Eileen Bransten to shut it down. Meanwhile, Warner Bros. was meeting with JAMS arbitrator Bernard Fried anyway and proceeded as if the dispute was going to be decided by Fried, a retired New York Supreme Court judge.

PHOTOS: Elijah Wood in 'Hobbit' and 16 Other Cameos in Prequels, Reboots and Remakes

Judge Bransten has now decided that the arbitrator should get first crack at figuring out whether the dispute is arbitrable. According to a just-released transcript of a hearing last week over dueling motions to stay or compel arbitration, the judge noted that arbitration is "well favored" in the judiciary system, and that the "appropriate thing to do" on the Weinsteins' part is to argue before the arbitrator on where the case should proceed.

The judge wasn't too keen on the Weinsteins' refusal to participate in arbitration, warning its lawyer, "I'm telling you, sir, if you do boycott, you're in default."

Email: Eriq.Gardner@THR.com
Twitter: @eriqgardner