Warner Bros. Disputes That Its VFX Work Is Assumed in Rhythm & Hues Sale

As a federal bankruptcy court oversees an auction that will determine new ownership on troubled VFX house Rhythm & Hues, Warner Bros. is letting it be known that its visual effects work doesn't come with the package.

R&H, the company behind the majority of the Oscar-winning VFX in Life of Pi, filed for Chapter 11 bankruptcy protection Feb. 13.

The company has survived since then on some $17 million in loans from Universal and Fox.

Warners has been less generous.

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Up until mid-January, when R&H fell into financial trouble and was unable to complete a sale of the company, it had contracts with Warners for three upcoming films: Black Sky, Winter's Tale and 300: Battle of Artemesium.

But according to a declaration by the studio's in-house lawyer Wayne Smith on Tuesday -- just hours before the auction was scheduled to begin -- those contracts were terminated on Jan. 18.

Warner Bros. submitted the declaration in response to R&H's list of executory contracts subject to assumption and assignment in a pending sale. The list given March 13 was made to entice bidders.

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But Warners says that agreements on the film "are not executory contracts," and because they were terminated prior to the bankruptcy, "the Warner Bros. agreements cannot be assumed and assigned pursuant to section 365 of title 11 of the United States Code (the 'Bankruptcy Code') in connection with any sale that is contemplated."

If R&H's new owner -- likely to be announced soon -- disagrees, a breach-of-contract lawsuit could be in the offing.

Email: eriq.gardner@thr.com; Twitter: @eriqgardner