2:12pm PT by Eriq Gardner
Lantern Says It's Not Responsible for Weinstein Co. Debts to Hollywood Stars
Harvey Weinstein's troubles have now led to a bankruptcy fight that could influence the future of dealmaking for Hollywood's talent.
For $287 million, Lantern Entertainment acquired the rights to The Weinstein Co.'s impressive library of top independent films, including Silver Linings Playbook, St. Vincent and August: Osage County. But upon the acquisition of these titles, Lantern says it began looking into the books and records of Weinstein's old studio and found them not to be particularly organized. Accordingly, it's not surprising that many A-list stars — among them, Bradley Cooper, Jennifer Lawrence, Robert De Niro, Meryl Streep and Julia Roberts — assert being owed money under agreements where they furnished their services in return for contingent profits from these movies. The question currently before a Delaware bankruptcy court is whether Lantern is responsible for these old debts.
The stars are looking to force Lantern Entertainment to assume these contractual obligations and make them whole. That led to a new filing on Monday (read in full here) where Lantern says that it purchased the copyright to these films independent of the talent agreements. In other words, Lantern argues it an absolute right to exploit the pics without settling old debts, and the A-list stars can't do anything about it.
Back in November, attorneys for the stars brought a motion aimed at gaining clarity over the situation. They alluded to how a film like Silver Linings Playbook continued to be streamed with Lantern presumably enjoying its position as a licensor, adding that despite this, the stars "have not received any payments during the pendency of these cases as required by the agreements, either before or after the closing of the sale."
Since then, Lantern has engaged in mediation without any breakthrough. The company has also sued Silver Linings Playbook executive producer Bruce Cohen in a "test case" over how to assess his contract.
When assets are sold through bankruptcy, it's typically done free and clear of liens, claims, encumbrances and other interests. However, that's not the situation with respect to "executory contracts," or agreements where the obligations of the parties are so far unperformed and a failure to complete constitutes a material breach.
The actors, producers and directors at odds with Lantern are arguing that their performance contracts are executory in nature. Besides noting contingent payment obligations, the stars point to other aspects of their deals where the relationship is an ongoing one. For instance, the stars say they have a right to approve the use of their likenesses, have the right of first refusal with respect to participating in sequels, and so forth.
In Monday's filing, Lantern rejects the reasoning.
For example, when it comes to likeness rights, Lantern points to the big appellate decision in the Innocence of Muslims case (Garcia v. Google) for confirmation that individual performers do not retain copyright protection in their performances. Meaning that Lantern, having purchased the copyright to Silver Linings Playbook, doesn't need Cooper's consent to exploit the film.
Lantern tells the judge that "all material obligations under the Talent Agreements were performed years ago, and in most cases, the only potential remaining obligation is one of contingent payment."
That's not enough to make these contracts executory, adds Lantern.
The big issue here could be settled by the bankruptcy judge's summary judgment ruling in the Bruce Cohen adversary case, and, if Lantern wins, it may give transactional lawyers a lot to think about when making future deals for their clients. Because Hollywood often uses special purpose vehicles — or shell companies — for specific projects, the prospect looms of bankruptcies wiping out net profit obligations for stars.
Lantern argues that it is only responsible for post-closing amounts — i.e., profit participation after July 2018, when it completed its acquisition of TWC assets. As for those old debts, Lantern is essentially telling these stars that they have to get in the unsecured creditors line, which includes the women who accuse Weinstein of sexual misconduct. There's likely not much money from the $287 million pool, since banks gobbled up a great amount and there's quite a few alleged Weinstein victims. Then again, there's insurance money and always the possibility of enhancing the pool of money should the administrators of the bankrupt TWC pursue its co-founder for malfeasance.