Producer of Clint Eastwood Classics Argues MGM Twisting the Meaning of Distribution

Good Bad Ugly - H 2013

Last month, a federal judge gave Hollywood some clarity on what it means to be a "producer." Coming soon could be definition around what it means to be a "distributor."

The answer may be forthcoming in a lawsuit involving accounting claims over two Clint Eastwood films —The Good, the Bad and the Ugly plus For a Few Dollars More — as well as Last Tango in Paris, the '70s classic featuring Marlon Brando. P.E.A. Films licensed Metro-Goldwyn-Mayer to distribute these films in the home entertainment market and claims in its suit that MGM has underreported gross revenues by inflating expenses.  

Belatedly, PEA is now asserting a "misclassification" claim that's premised on MGM taking a 50 percent distribution fee even though Twentieth Century Fox Home Entertainment does the actual distribution work. According to P.E.A., that makes Fox a "subdistributor" that, per a 1993 agreement, entitles MGM to collect only a 15 percent distribution fee. According to MGM, it either doesn't matter or Fox is "servicing company." The difference adds up to about $4.6 million in damages, says the plaintiff. 

MGM is grumbling at the way this unpled claim popped up late in the litigation, but a judge decided to hear summary judgment motions on this issue in advance of an October trial. On Monday, P.E.A. blamed critical evidence being withheld for years as well as alleged misrepresentations as the reason why it didn't trot forth the "misclassification" claim sooner.

In court papers, P.E.A. excoriates MGM's "bizarre" interpretation of distribution under its agreements. 

"Tellingly, MGM barely argues that it 'distributes' films on home video itself," states P.E.A. "It is little wonder why: Both parties' expert witnesses agree that Fox 'distributes' P.E.A.'s titles. MGM's publicly filed financial reports tell the same story.... And MGM's own-organization charts reflect its utter lack of home video manpower."

P.E.A., represented by attorney Chad Fitzgerald, goes on.

"Because MGM gets 50% if it either distributes by itself or with the help of a servicing company, if 'subdistributor' and 'servicing company' meant what MGM says, MGM would receive a higher fee for doing less work. This is nonsense."

MGM believes this is irrelevant.

"The 1993 Amendment, which governs MGM’s reporting with respect to the Eastwood Pictures during the time period at issue, provides that MGM is entitled to a 50% distribution fee irrespective of whether Fox is a 'servicing company' or a 'subdistributor,' ” it states in a summary judgment motion.

The defendant, represented by attorney Martin Katz, argues that in 1993, the parties memorialized a renewal of distribution rights, set distribution fees with limited exceptions, and that essentially MGM and P.E.A. became "partners" in the home video distribution of the two Eastwood films. MGM contends that P.E.A. is looking at the wrong portion of the contract, and that its claimed distribution fee "applies irrespective of whether MGM distributes the Pictures," at least the Clint Eastwood ones.

As for Last Tango in Paris, MGM concedes that whether Fox is a "subdistributor" or a "servicing company" affects what distribution fee MGM is entitled to deduct in its reporting to P.E.A. MGM argues for the latter classification of Fox's role based on the contention that when the 1993 agreement was negotiated, it was using Warner Bros. for home video distribution services and the parties specifically agreed that Warner would not be treated as a "subdistributor."

MGM tells the judge, "Because the evidence is undisputed that the distribution services that Fox renders are in all material respects similar to the distribution services that Warner rendered, Fox is a 'servicing company' within the plain meaning of the 1993 agreements."

But P.E.A. on Monday retorts that it never had knowledge of the actual "services" being provided by Warner or Fox, and more important, the contract is clear that MGM must actually distribute films. According to the plaintiff, "By its logic, even if MGM outsourced every distribution function to a subdistributor, it would still receive a 50% fee for doing nothing."