Legendary Loses Appeal in 'Godzilla' Legal Battle

Legendary Pictures has suffered another loss in its ongoing legal battle with three producers who claim they were unfairly ousted from the upcoming film, Godzilla. On Tuesday, a California appeals court rejected the company's contention that a clause in an unsigned contract required arbitration.

The legal controversy erupted in January 2013 when Legendary preemptively sued producers Dan Lin, Roy Lee and Doug Davidson. Legendary believes a March 2011 contract requires the producers to be involved in Godzilla only if they are "deemed to be engaged" to produce the film. The trio allegedly didn't justify their keep so in an eyebrow-raising move with the potential of upsetting studio/producer relationships throughout Hollywood, Legendary sought a court order allowing the company to move forward with the project without the involvement of Lin Pictures and Lee's Vertigo Entertainment.

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This brought a counterclaim from the producers. The trio demanded millions of dollars in damages and wanted "substantial punitive damages to make an example of Legendary so that it and no other studio will in the future treat their producers in this outrageous manner."

After the producers hit back, Legendary suddenly decided that it would be best to litigate the dispute in private arbitration. The company filed a motion to enforce an arbitration clause in a long-form contract with the producers. But that deal was never signed, so the issue of arbitrability gave LA Superior Judge Abraham Kahn an early reason to address what was really governing the relationship of the parties.

Last May, Judge Kahn denied arbitration.

At the time, Legendary's lead lawyer Dale Kinsella said the ruling would have "no bearing on the merits of the parties' respective claims."

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Nevertheless, it had to be a blow to Legendary that a judge had found the draft long-form agreement not binding -- or at least, the arbitration provision. The studio subsequently appealed.

On Tuesday, about two months before Godzilla is set to appear in theaters, California appeals court justice Judith Ashmann-Gerst gave Legendary more bad news.

"We agree that it appears that the parties intended to memorialize in writing the terms of their oral agreement," she writes. "The draft long-form agreement may have been an attempt to do so; but, respondents objected to many of the terms and expressly reserved the right to object to other terms. And, in any event, the draft long-form agreement indicated that it was not final until executed by the parties -- it never was."

Justice Ashmann-Gerst says there is "substantial evidence" that there never was an agreement to arbitrate. Although the ruling expressly pertains to the issue of arbitrability, there is at least a strong hint that Legendary hadn't locked down its desired terms with the producers.

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"The parties began working on the film as soon as the oral agreement was reached in February 2010," the opinion continues. "They continued working on the project for a couple of years, even while the draft long-form agreement was circulated between attorneys. But that does not compel the conclusion that once the draft long-form agreement was prepared, the parties were no longer working according to the terms of the oral agreement, but had adopted the terms of the proposed written contract."

In the producers' cross-complaint, they contended that Legendary orally agreed to a $25,000 developmental fee, fixed compensation of $1.3 million and three percent of the first-dollar gross receipts of the film. The producers are being represented by attorney Larry Stein at Liner Grode.

Godzilla comes out in theaters on May 16, and a trailer debuted last week to huge numbers. But Legendary could be facing a big court loss. The next step in this case is a conference being held back at LA Superior Court on March 20.

"The Court of Appeals decision today decided nothing more than where Legendary’s dispute with Roy Lee and Dan Lin will be litigated," says Kinsella. "Irrespective of the location of the forum, Legendary is confident it will prevail on the merits of the case, for which this recent ruling has no bearing whatsoever."

"We are pleased that the Court of Appeal has agreed with our legal and factual position," says Stein. "We look forward to presenting our case in a court of law before a jury. We are confident the jury will find in our favor.”

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