Judge Hands MGM Partial Win in Distribution Suit Over Clint Eastwood Classics

The court dismissed PEA's misclassification claims, but a trial is still set for October.
'The Good, the Bad, and the Ugly'

A jury will decide if Metro-Goldwyn-Mayer should have paid a few dollars more for its use of Clint Eastwood classics after a California federal judge allowed some claims to survive summary judgment. 

PEA Films sued MGM in 2014, claiming the studio has been underpaying for its distribution rights to For a Few Dollars MoreThe Good, the Bad, and the Ugly; and Last Tango in Paris.

The suit alleges MGM has been using creative accounting methods to lower its payments by inflating expenses, in part by misclassifying Fox as a servicing company instead of as a subdistributor — shorting PEA by $4.6 million.

U.S. District Judge Beverly Reid O'Connell found that PEA failed to adequately allege its misclassification claims. The claims were added late in the proceedings and, while O'Connell agreed to hear motions on the issue, she declined to allow PEA leave to amend its complaint.

"Plaintiff apparently seeks to bypass the pleading process and informally incorporate its misclassification claim into the proceedings," O'Connell wrote in an Aug. 10 ruling. "To allow Plaintiff to amend its Complaint now would fly in the face of the Federal Rules of Civil Procedure."

The judge dismissed the misclassification claims with prejudice, so PEA will have one less arrow in its quiver moving forward. 

O'Connell also addressed whether there is an issue of material fact as to the reasonableness of expenses paid to Fox by MGM. Under the agreement with PEA, MGM is entitled to deduct from its total profit distribution and packaging expenses that were incurred by Fox and charged to MGM.

At issue is a $10.6 million expense, which PEA has argued was unreasonable — but the parties dispute whether any evidence was presented before the discovery cutoff. An expert witness made the claim in a supplemental report filed at 8:47 p.m. on the day of the deadline, which MGM argued was untimely. O'Connell noted that PEA complied with the court's deadlines and overruled the objection.

MGM also argued the expert's report was inadmissible hearsay, but O'Connell disagreed and overruled that objection.

Moving on to the issues of good faith and fair dealing raised by PEA, O'Connell found that the expert's claim that Fox overcharged MGM by $1.2 million-$1.8 million for manufacturing and by $300,000 for packaging is enough to defeat summary judgment. 

In dismissing the motion, O'Connell found "a genuine dispute of material fact as to whether Defendant acted unreasonably by simply 'adopting' and passing these expenses on to Plaintiff without investigating them or ensuring they were reasonable."

PEA on Monday filed an ex parte application for an order clarifying O'Connell's ruling, asking her to make clear the dismissal with prejudice of the misclassification claim is not a ruling on the merits of the claim.

In its opposition, MGM argues the application is merely a "thinly veiled motion for reconsideration" and is not appropriate for ex parte relief.

Trial is currently scheduled to begin Oct. 4.