UPDATE: Paramount has responded to the Melrose II lawsuit. “Paramount has complied with its obligations to Melrose 2 and has been forthcoming in the audit process. We are disappointed that these sophisticated investors would choose to file a lawsuit filled with hyperbole that ignores the true facts rather than seeing that process through to completion. The Melrose 2 investors have already received almost 90% of their investment back under the financing agreement, and a number of the films in which they participate (such as the successful Transformers 3) remain in the earliest stages of their earning potential.
“While we intend to vigorously defend this lawsuit, the differences between the parties’ positions are relatively modest in amount and we are confident they can be resolved in the ordinary course.” –Virginia Lam, spokesperson for Paramount Pictures.
EARLIER, 3:47 PM:
See the full complaint here.
LOS ANGELES, November 29, 2011 – Kirkland & Ellis LLP is representing Melrose Investors 2 LP (Melrose 2) in a breach of contract case in which Melrose 2 seeks to recover profits related to its nearly $375 million investment in 29 films produced by Paramount Pictures Corporation and DW Studios L.L.C., formerly known as Dreamworks Studios (Defendants).
The 29 films, which include such hits as Mission Impossible 3, Charlotte’s Web, Dreamgirls, Flags of Our Fathers, Blades of Glory, Jackass 2 and all three Transformers films, among others, have grossed close to $7 billion to date.
“The investor group was hoping to avoid being the third co-financing vehicle to have filed suit against Paramount and DW Studios LLC, but despite our ongoing efforts to settle our differences, Paramount has refused to cooperate,” a spokesperson for the investor group stated.
The complaint alleges:
· In 2006, Defendants entered into an agreement with Melrose 2 through which Melrose 2 would own up to a 25% copyright interest in up to 30 films that Defendants produced. To acquire this ownership interest, Melrose 2 agreed to fund a pro rata amount of the production costs.
· Melrose 2 met its obligations and has to date, provided nearly $375 million to Defendants to produce 29 films.
· In the five years since the agreement was signed, Melrose 2 has not received any profits from their nearly $375 million investment.
· Defendants have repeatedly hindered Melrose 2’s audits, engaged in obstructionist tactics, overstated losses and understated the revenues received in connection with the exploitation of the Melrose 2-funded films.
“Paramount has deliberately inflated losses and underreported gross receipts and we plan to aggressively pursue our client’s claims and recover its share of the profits in these films,” said Kirkland & Ellis attorney Mark Holscher, who leads the Kirkland team, together with partner Diana Torres.
Mr. Holscher is recognized as one of California’s Top 100 attorneys and is a nationally recognized bet-the-company trial attorney. In 2010, he won a $52 million verdict on behalf of actor Don Johnson in a breach of contract and copyright infringement case involving unpaid profits against Rysher Entertainment, Qualia Capital LLC and 2929 Entertainment, Inc.
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