Judge Set to Allow Kevin Costner's 'Robin Hood' Fraud Claim

The actor alleges that Morgan Creek intentionally concealed money from him on the 1991 film.

Kevin Costner is on the verge of getting a green light to pursue Morgan Creek on a claim of fraudulently hiding profits from the 1991 hit Robin Hood: Prince of Thieves.

In February, the actor's lawyers experienced a Waterworld-like setback when a judge dismissed the fraud claim. Back then, Morgan Creek successfully argued that Costner's fraud claim wasn't more than a dressed-up breach-of-contract allegation. Since the big money is in fraud, Costner's lawyers vowed to file an amended lawsuit that reintroduced alleged fraud. In reaction, Morgan Creek's attorneys again challenged the revived claim as insufficient.

But in advance of a hearing on Thursday, a Los Angeles judge has issued a tentative ruling that overrules the demurrer with respect to the fraud allegation.

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According to the ruling, the judge says, "Although there are similarities and overlap between the Breach of Contract and this Fraud claim, it appears to the Court that Plaintiffs are alleging something materially different than their breach of contract claim -- and that they have alleged all the required elements of the claim with sufficient specificity."

The ruling would set up another high stakes battle in Hollywood.

In the lawsuit over a 1991 film that grossed more than $300 million at the box office, Costner objected to no or late participation statements from 2004 to 2011. But what made the dispute potentially significant was a claim that Morgan Creek was hiding money from him by assigning foreign distribution rights on Robin Hood to a foreign company owned by Morgan Creek CEO James Robinson. The foreign rights on Robin Hood allegedly were sold as a package, and the lawsuit suggests that Morgan Creek might have participated in a practice that's known in Hollywood as "straight-lining," or allocating the same share of a blanket license fee to every movie in a package, regardless of performance.

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Morgan Creek's alleged practice of using foreign companies to shield liabilities has come up elsewhere -- such as in the company's fight with the Japanese distributor over the 2006 film The Good Shepherd.

Still, the judge ruled in February that Costner hadn't "sufficiently pled that the participation statements provided by Defendants were misleading."

Moves since that time by Costner's team at Lavely & Singer appear to have changed the situation.

Costner is now arguing that Morgan Creek concealed their under-reporting of home video revenue by not providing the “greater” of the two methods of calculating what he was owed. He was contractually owed the greater of either: (a) amounts received by Morgan Creek less a 25 percent distribution fee, or (b) 10 percent of the wholesale price of home video gross receipts received by the home video distributor, Warner Bros.

The actor says that Morgan Creek has been reporting the latter figure despite knowing the first was more significant. He adds that the film company has a duty to disclose “truthful, accurate, full, and complete” revenue information and intentionally failed to do so. An allegation that Morgan Creek intentionally obfuscated the methodology of how it derived "gross receipts" seems to have convinced the judge that the fraud claim should survive.

At the same time, the ruling if adopted won't be a complete victory for Costner, who, according to Robinson, has already been paid $40 million on the film over the years. The judge is set to throw out a conversion claim because "absent exceptional circumstances ... unsegregated sums of money, in the possession of a defendant, are not subject to conversion."

A trial has been tentatively scheduled for March 2014.

E-mail: Eriq.Gardner@THR.com
Twitter: @eriqgardner