11:48am PT by Eriq Gardner
Warner Bros. Unit Hit With Racketeering Lawsuit Over 'The Conjuring,' 'The Hobbit' (Exclusive)
Halloween cometh early for Warner Bros., which has been hit with a new lawsuit over The Conjuring horror franchise. In this instance, the big scare was delivered in a Houston, Texas, courtroom in the form of a claim that its subsidiary New Line Cinema violated a federal racketeering law by defrauding the creator of The Conjuring, by swindling Harvey Weinstein on The Hobbit and cheating other victims.
The lawsuit comes from Tony DeRosa-Grund and his family trust. His Evergreen Media Group has been fighting Warner Bros. over The Conjuring for more than a year, even before the film — based on the case files of real-life paranormal investigators Ed and Lorraine Warren — came out in theaters in the summer of 2013 to favorable reviews and $318 million in worldwide gross.
Evergreen licensed the life rights of the Warrens as well as their case files and was upset after its own movie rights assignee New Line raised hackles over Evergreen's potential deal with Lionsgate for a Conjuring TV series. The dispute escalated from a battle at the Trademark Office to one in arbitration to lawsuits filed in federal court over contingent compensation owed on the first film and rights on the sequels including Annabelle, which was released earlier this month, and The Conjuring 2, which was recently moved from an October 2015 release date to sometime the following year.
The latest, unexpected plot twist in this horror show is a RICO claim against New Line and its head of business and legal affairs, Craig Alexander, that alleges that among other things, the film studio has participated in "money laundering to acquire and conceal their victims' assets and to cheat their victims of their income."
The complaint filed on Wednesday was prepared by Charles Grimes with the assistance of two former U.S. prosecutors at the Department of Justice — Philip Hilder and Marc Garber — and focuses most heavily on the legal controversy over The Conjuring and events beginning in early 2010.
At the time, DeRosa-Grund was in Chapter 7 bankruptcy and looking to secure approval of a deal made with New Line. DeRosa-Grund had agreed to assign a portion of the Warren case files to New Line, which intervened in the bankruptcy proceeding, and according to the complaint, irrevocably assigned those rights to Warner Bros. for no consideration.
New Line allegedly presented a "Deal Memo" to the bankruptcy trustee, and, the new lawsuit states, "What was significant at this point about the Deal Memo is that Defendants NLC and Alexander made sure that New Line Productions would be the only bankruptcy court-approved option of both plaintiff DeRosa-Grund and EMH to make a theatrical motion picture based on the Warren's Life Rights and Case Files."
The lawsuit says that New Line "obtained enormous leverage" over DeRosa-Grund, but that it also misled the bankruptcy court and trustee in various ways, including representing that DeRosa-Grund would be a producer, get credit and be paid fees on sequels.
The complaint then echoes much of the madness addressed in earlier legal actions over Conjuring sequels, including the beginning of direct negotiations between New Line and the now-87-year-old Lorraine Warren, the alleged withholding of $2 million in producer and right fees, communications with Lionsgate, and so forth. Along the way, the various financial transactions and wire transmissions that supported the alleged fraud are detailed.
Lest the complaint amount to no more than one unhappy producer's gripes, the theory of racketeering begins to be articulated on page 19 of the 35-page complaint. The plaintiff believes that New Line employs a "modus operandi" to obtain rights to properties, cheat profit participants including the Weinsteins and "inflate the asset base of Warner Bros., while excluding any related liabilities."
DeRosa-Grund is alleging a "pattern of racketeering activity" by New Line and its alleged co-conspirator Warner Bros., which raises some questions over how corporations —and movie studios— structure themselves. And while the details on other victims are rather thin, at least for now, there is the reference to Weinstein's battle with the studio over profits for Hobbit sequels. That dispute examines a deal that promised Miramax 5 percent of the gross receipts of the film version of J.R.R. Tolkien's Hobbit. Weinstein's company once controlled rights to the property before assigning them to New Line, and the parties are currently in arbitration over the issue of whether their deal is limited to the "first motion picture" or includes the second and third Hobbit film. Weinstein is demanding at least $75 million.
Along with today's filing comes a press release from Evergreen that says the lawsuit "could expand significantly and put New Line Productions' entire business model at issue" and touts the former DOJ prosecutors as previously working on the demise of Enron and the toppling of Countrywide Financial.
Evergreen also says it has served New Line with notices of formal termination of their agreements, and a spokesperson for the company adds, "All of New Line’s legal maneuvering to date are a smokescreen and an effort to try to get Evergreen to sell to New Line all of Evergreen’s reserved and uncontested rights to do a television series based on the case files of Ed and Lorraine Warren. That is not going to happen. To use a movie metaphor, the initial federal litigation was the 'trailer,' with this RICO filing today we are now at the feature."
A Warners spokesperson responds, "The case has no merit and we will vigorously defend it.”