EXCLUSIVE, updated with LMNO statement below: Discovery Communications has accused LMNO Entertainment CEO Eric Schotz of scheming to “systematically and repeatedly overcharge and defraud Discovery” by submitting fraudulent production budgets on a wide number of reality shows the company produced for its networks, including Unusual Suspects and The Little Couple.
The suit is the latest development in an ongoing saga of alleged deception, betrayal and embezzlement. On June 22, LMNO filed a $7 million breach-of-contract and copyright infringement lawsuit against Discovery, accusing the giant media company of conspiring with a “criminal extortionist” to squeeze LMNO out of six of its shows, including TLC hit The Little Couple.
Late Monday night, Discovery filed a countersuit against LMNO in U.S. District Court in Los Angeles (read it here). “For over a decade, LMNO and Discovery enjoyed a long-standing relationship during which LMNO produced a number of programs for various Discovery networks,” Discovery said. “Unbeknownst to Discovery, LMNO utilized that long-standing relationship with Discovery to create a false atmosphere of trust upon which Discovery relied, but LMNO secretly and repeatedly betrayed that trust.”
In its countersuit, Discovery also accused LMNO of having kept two separate sets of books to conceal its deceptive business practices. LMNO, the suit claims, failed “to contribute its share of production budgets for numerous shows,” and “manipulated books and records purposely to reflect false and/or doctored information, while simultaneously maintaining separate books and records that documented the actual costs of production, at substantially lower amounts than those reflected in the false budgets. These false budgets went far beyond ‘padding,’ or generous but good-faith estimates of actual costs, and instead routinely and intentionally overstated the actual costs of production by more than 30%.”
LMNO later sued its former accountant, accusing him of embezzlement and extortion, and of giving records to Discovery that allegedly he’d falsified in an attempt to “irreparably damage LMNO’s reputation and business.”
On June 30, FBI agents showed up with a search warrant at LMNO’s offices in Encino as part of an ongoing criminal investigation.
Its countersuit says Discovery first learned of LMNO’s deception late last year through a call to its ethics hotline from an LMNO whistleblower. Since then, the giant media company said, it learned that LMNO had for years been “systematically defrauding and victimizing Discovery.”
Triggered by the call from the whistleblower, Discovery said that it “undertook to determine the scope of the betrayal and the damage the LMNO defendants inflicted.” In its suit, Discovery said it reached out to LMNO to obtain more information and to conduct an audit of its books and records. “Rather than cooperate with Discovery on the audits, as contractually required, and work to quell Discovery’s serious concerns, LMNO stonewalled, delayed, and frustrated Discovery’s efforts,” the suit alleges.
Discovery says that in the midst of its efforts to piece together the facts, it was contacted by the FBI in March “seeking information in connection with what Discovery learned was an ongoing federal criminal investigation into the LMNO’s business practices.”
Discovery, which says it’s been cooperating fully with the FBI’s investigation, terminated its deal with LMNO and took control of six of its shows. A week later, LMNO filed the $7 million breach-of-contract suit against Discovery, claiming that LMNO was the true owner of those shows, including The Little Couple.
In its answer to that suit, Discovery says that it, and not LMNO, “is the registered owner” of The Little Couple.
LMNO said in a statement today that it “is and remains the victim of a crime. As a result of the breaches and offenses against us, we chose to defend our company, our copyrights and intellectual property, and our decades-long reputation of excellence and honesty, knowing this meant confronting a powerful, global media company with near-limitless resources. To that end, Discovery has crafted a narrative that seeks to disparage us to the entire industry and which we vehemently deny. In our commitment to fighting the wrongs perpetrated against us, LMNO is fighting for the integrity of our business as well as for the production community. Throughout this course, LMNO also continues to assist the authorities in their ongoing investigation. Meanwhile, our doors remain open and we are in full production and active development on series and projects for a variety of networks.”