Netflix Aims to Exit Relativity Deal With Appeal of Bankruptcy Judge's Conclusions

Ryan Kavanaugh - H 2016
Getty Images

Ryan Kavanaugh - H 2016

With hundreds of millions of dollars on the line, Netflix is not quite ready to let Relativity Media exit Chapter 11 bankruptcy without a new challenge.

On Friday, the streaming video giant filed paperwork to appeal a bankruptcy judge's findings of fact, conclusions of law, and confirmation of its Chapter 11 reorganization plan. In U.S. Bankruptcy Judge Michael Wiles' written order, he ruled that Relativity "may assume the agreements" struck with Netflix, that there "has been no default under such agreements, and that the Debtors have provided adequate assurance of future performance."

The appeal now goes to a New York federal court. At this point, Netflix hasn't filed any motion to stop the judge's conditional confirmation order from moving forward pending an appeal.

A Relativity spokesperson gave a statement to The Hollywood Reporter: "The Netflix appeal disregards what is in the best interest of all of our stakeholders and is merely is a last-ditch effort to unfairly leverage the Chapter 11 process to only their advantage. We’ve continuously worked in good faith with Netflix throughout the Chapter 11 process."

Netflix became vocal in bankruptcy court in late January, questioning the uncompleted paperwork and arguing that Ryan Kavanaugh's studio hadn't delivered a promised minimum number of films, nor could it guarantee such delivery in the future.

The objection caused Kavanaugh to unleash on Netflix, saying, “Netflix suffers from what everyone used to call 'Yahoo syndrome,'" and arguing that Netflix wanted to renegotiate its deal. "We made our deal with them in 2010 when not only would no other studio work with them, but there were public and known blacklists prohibiting studios and television companies from working with them. For the first few years after we made our deal, we were their knight in shining armor. Just look at Netflix even today. It's mostly Relativity movies.”

At the hearing, the judge wasn't impressed with Netflix attorney's preparation, but the streaming company's arguments largely failed because under the contract, Relativity only had to put forward best efforts to delivering minimums, and the penalties for failing to do so were not written particularly punitively.

Judge Wiles moved forward on confirming the reorganization plan, though he conditioned a Chapter 11 exit on Relativity providing firmer documentation of new financing and the studio's Trigger Street deal with Kevin Spacey and Dana Brunetti.

Netflix has yet to file substantive arguments about perceived errors in the bankruptcy judge's conclusions.