Paramount Loses Latest Bid to Revive Lawsuit Against Dissatisfied Investors

The investors had unsuccessfully asserted fraud before Paramount went on the counteroffensive.
Courtesy of Photofest
Paramount's 'Mean Girls'

Exactly how long will Paramount Pictures be in court against the financial firms that put up money for a slate of films including Mean Girls? Will the studio take the case up to the Supreme Court? There's just attorney fees on the line at this point, but Paramount hasn't let go of a grudge. Unfortunately for the studio, Paramount suffered another loss on Tuesday at New York's highest appellate court.

Allianz Risk Transfer was one of several Wall Street firms to sue in federal court in 2008 with allegations of being defrauded on 25 films released between April 2004 and March 2006, including Mean Girls, Elizabethtown, Collateral, The Manchurian CandidateCoach Carter, Team America: World Police, The Stepford Wives, The Longest Yard and Alfie.

The case eventually went to trial in 2014 and tested whether Paramount had made misrepresentations to the investors by abandoning international "presale" agreements in favor of self-distributing pictures in foreign markets. Midway through trial, the judge delivered a win for Paramount with the finding that there were no false statements to "highly sophisticated businessmen." 

As the 2nd Circuit Court of Appeals affirmed Paramount's win, the studio turned around to sue the investors for allegedly breaching a covenant not to sue.

Initially, Paramount got a New York state judge to greenlight its pursuit of $8 million in legal fees, but that decision was then overturned by an appeals court on the basis that Paramount should have instead asserted counterclaims in the federal action. Today, New York Court of Appeals Associate Judge Michael Garcia agreed that Paramount's claim is barred by res judicata, meaning a matter already judged.

Although wonky, what's at issue here — the interplay between federal and state procedure — is fodder for a majority opinion from Garcia as well as a concurring opinion and a dissent. (Read it in full here.)

Garcia notes that the U.S. Supreme Court hasn't squarely addressed the issue of claim preclusion in the context of a legal action encompassing both federal and state law claims, but writes, "federal and state preclusion law dictate the same result" and "where federal law would bar the claim and state law would not, we anticipate (and the dissent apparently agrees) that federal preclusion doctrine will supply the applicable rule of decision, barring the claim."

New York Court of Appeals Judge Jenny Rivera agrees with the outcome in a concurrence, although she doesn't want to go so far as opining on what preclusion rules apply in state court where there has been a prior federal judgment.

On the other hand, New York Court of Appeals Judge Rowan Wilson looks at the fact that had Allianz brought its initial lawsuit in state court, Paramount wouldn't have been required to file a compulsory counterclaim without being further barred from suing. With that starting point, Wilson adopts a more permissive interpretation and also writes, "I believe the Supreme Court would decide the question differently, holding that the claim-preclusive effect of each claim in the federal action should be determined by the res judicata principles of the jurisdiction whence each claim sprung."

If Paramount wishes to continue this fight, the next stop would be the 2nd Circuit Court of Appeals, but as the above indicates, it's not completely outlandish to imagine the Supreme Court could get the opportunity to tackle a now decade-old dispute that has a connection to Mean Girls.