Universal's Response to StudioCanal Lawsuit: We Overpaid You (Exclusive)

Universal Studios has lodged a snappy retort to StudioCanal's allegation of being deprived of "tens of millions of dollars and likely more" from films developed by the Working Title label.

In a nutshell, here's the response: Yeah, we checked, and actually, you owe us.

The two companies are actually fighting on two fronts -- both in a California federal court and in arbitration. StudioCanal sued Universal in February, claiming missing revenue under a joint venture from 1999 through 2009 that covered 44 films, including About a Boy, Billy Eilliot, Love Actually and O Brother Where Art Thou? StudioCanal also has initiated arbitration over a co-financing agreement between the two companies.

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As Universal prepares a motion to move the dispute fully to arbitration, the big studio simultaneously is disputing what StudioCanal's auditors have allegedly turned up, and claiming that its own audits have revealed that it has overpaid its partner.

The lawsuit came after StudioCanal examined records on six of the films under the partnership.

According to a court filing Monday, Universal's lawyers say:

"Indeed, as a result of the audit reports, Universal has re-examined its accounting generally and has specifically re-examined almost all of the alleged improper practices identified by StudioCanal's auditors. In so doing, Universal has determined that not only has its accounting been consistent with both the [Joint Venture] Agreement and the [Co-Financing and Distribution Agreement], but Universal actually significantly overpaid StudioCanal in connection with four movies for which third-party expenses were substantially undercharged. Thus, the net result of the audits and Universal's re-examination will likely be an amount owing from StudioCanal to Universal."

Reached for reaction, Robert Schwartz of O'Melveny & Myers, representing StudioCanal, says, "Honestly, the information they provided in supposed error in their favor is so messed up. All it tells us is that we can have no confidence in their accounting system, and we will have to dig much deeper."

Schwartz says that he was informed by Universal of the contention of owed money in a letter a few days ago, and that he's attempting to make sense of something he says, "points in all different directions," underpaying on some films while allegedly overpaying on four. He adds that what is being claimed is "horrifying" and that it illustrates the need to do more auditing. "We only audited six films," he said. "We didn't audit TV. There's a lot more digging to do."

Richard Kendall is the attorney leading Universal's defense. The studio says it has no comment other to say that it has filed an answer denying the allegations.

E-mail: eriq.gardner@thr.com; Twitter: @eriqgardner