Litigation Scuttle Movie Deal
May 2, 2001 Second of two parts By Ross Johnson Special to the Daily Journal
LOS ANGELES - In Hollywood's hottest legal dispute, everyone agrees on only one thing: The parties did try to settle.
But the settlement efforts spawned allegations of forgery, treachery and a marathon negotiating session that left a hungry Hollywood executive swinging a table lamp in Munich.
In May 1999, Hollywood's Franchise Pictures and Germany's Intertainment AG signed a deal that put Franchise on the Hollywood map and sent Intertainment's stock soaring.
The deal that Franchise's flamboyant founder, Elie Samaha, signed made his company one of the most prolific in Hollywood, producing 25 films in a 22-month span, more than many major studios.
Nineteen months later, the love affair was over. Franchise had produced a string of money-losing features, and Intertainment's stock had plummeted to $4 from a high of $137. Today, the stock is trading at $6.
Like a nasty celebrity divorce, this breakup is playing out in both the courts and the media. Samaha admitted that budgets for his pictures change more than Madonna's looks. Intertainment Chairman Rudiger "Barry'' Baeres said those changing budgets allowed Samaha to steal $75 million from his company.
Samaha allegedly did this by artificially inflating the production budgets on 10 Franchise films, among them "The Whole Nine Yards" and "Battlefield Earth."
In response, Samaha shot back, "There was no fraud except for the lies `Barry' Beares told his shareholders."
Intertainment, as the distributor of Franchise's films in Europe, was obligated to pay 47 percent of the budgets.
Intertainment also sued Imperial Bank, which financed Franchise's
productions. The lawsuit accuses Imperial executives of signing off on
budgets they knew were inflated.
On April 19, U.S. District Court Judge Carlos Moreno ordered all litigation among Intertainment, Franchise and Imperial Bank stayed as he sent Intertainment's claims against Imperial Bank to arbitration.
The next day, Moreno dismissed without prejudice Intertainment's claim that Franchise and Imperial had conspired to commit fraud.
On Tuesday, the Daily Journal looked at the accounting practices that
led to the lawsuits. Today's story explores the failed efforts to settle the
As Franchise's films lost money and Intertainment's stock sank, charges started flying between Europe and California. In October, both sides sent out lawyers with instructions to play hardball.
In its corner, Franchise had Larry Stein of Alschuler Grossman Stein & Kahan, a litigator known for his bruising style. Stein previously had represented Franchise.
Intertainment hired Scott Edelman, the head of entertainment litigation at
Gibson Dunn & Crutcher, and Lawrence Ulman, one of the firm's top bank fraud
Pay up, Intertainment's lawyers told Stein, or Intertainment would file a breach of contract, fraud and racketeering suit against not only Franchise but also Imperial Bank, whose entertainment finance group had loaned Franchise more than $500 million in recent years and signed off on Franchise's film budgets.
Intertainment claimed that Imperial Entertainment Group knew Franchise had inflated its cost projections and still signed off on them.
Franchise's lawyer was not impressed.
"Take your best shot," Stein said to his opposing counsel.
But before Intertainment's lawyers could load the gun, Stein beat them to it.
On Dec. 14, Stein filed Franchise Pictures v. Intertainment GmbH in Los Angeles Superior Court. The complaint alleges Intertainment and Baeres committed promissory fraud and breached oral contracts in their dealings with Franchise.
Stein filed this while both sides were negotiating to get Intertainment's claims against Franchise into mediation or arbitration, in advance of a possible lawsuit by Intertainment.
But on Dec. 21, both sides filed competing lawsuits in U.S. District Court
in Los Angeles. Franchise Pictures v. Intertainment Licensing (C.D. Cal.,
filed Dec. 21, 2000); Intertainment Licensing GmbH v. Franchise Pictures
(C.D. Cal., filed Dec. 21, 2000).
By then, the settlement efforts had broken down, a Franchise executive had spent a harrowing three days in Munich, and reports surfaced that the Franchise management team members were at odds with one another and their lawyer.
Exactly what happened between Dec. 14 and Dec. 21 depends on who is talking. Both sides agree that, hours after Franchise filed the initial lawsuit on Dec. 14, Stevens was on the phone with Intertainment lawyers. The next day, he was on a plane to Germany.
The Intertainment lawyers said that, during a negotiating session in Munich,
Franchise President Andrew Stevens acknowledged the fraud, agreed that
Imperial Bank was involved and signed an indemnity agreement in exchange for
Stevens and his lawyers said he never made such claims. Stein labeled any signed indemnity agreement a forgery.
Stevens, 45, is the son of actress Stella Stevens and former husband of actress Kate Jackson. Before he joined forces with Elie Samaha, he was a producer, a director and an actor. His credits include fright and flesh features like "Night Eyes 3'' and "The Terror Within II.''
At Franchise, he is a co-owner and oversees business affairs.
Intertainment wanted the Franchise lawsuit against Intertainment dismissed under seal and then agree that Stein had filed the lawsuit by mistake, Stevens said. Intertainment also wanted written assurance that they never would have to deal with Stein or anyone at Stein's firm again.
Stevens said Baeres planned to use the agreement to convince his board of directors to let him negotiate a settlement with Franchise.
Before leaving for Munich, Stevens signed and faxed a confidential settlement offer with those terms in it, one that also promised that Franchise would pay Intertainment up to $35 million to settle damage claims.
Stein, vacationing in Hawaii, learned that Stevens and Samaha wanted to resolve the dispute with Baeres in a "business discussion" and without litigation.
Stein withdrew his lawsuit. But he said recently that he did not know at the time that Stevens had signed a confidential settlement offer.
Intertainment produced the confidential settlement offer in a court filing on Jan. 19. On Dec. 15, Stevens and Franchise International Sales executive Lisa Wilson flew to Munich, hoping to settle the dispute.
Without benefit of counsel, Stevens engaged in a marathon negotiating session on Dec. 17 and 18 with various Intertainment board members and a team of lawyers, including Baeres, Intertainment Vice President David Williamson (a lawyer formerly at various L.A. firms) and John LaViolette, Intertainment's transactional lawyer at Bloom Hergott Diemer & Cook.
"I thought I would be discussing a business resolution," Stevens said. "But they hit me with lawyers for 18 hours. I wasn't even offered any food."
Stevens was prepared to sign a long-form settlement agreement to both lawsuits. His partner Samaha, who was in Paris, earlier had faxed in his signature to the agreement.
In the early morning hours of Dec. 18, Stevens called Stein's co-counsel, Ann Loeb. She advised him not to execute the agreement until Stein had a chance to look at it.
Stevens said he ripped the offer up.
It was then 4 a.m. on Dec. 18.
Stevens said that Intertainment lawyer John LaViolette then offered him what "appeared" to be an indemnity release.
In exchange for indemnity from a lawsuit, the release called for Stevens to show how his partner Samaha and others at Franchise defrauded Intertainment via the scheme to inflate budgets. Stevens was to provide numerous details relating to Franchise's interoffice memos and banking files.
The release would be valid even if the parties did not reach a settlement to the lawsuits - if Stevens provided information that would allow Intertainment to litigate a fraud damage claim against Imperial Bank. At that point, Imperial was not a party to the lawsuit.
Stevens said he became enraged at the offer. After reading it, he picked up a nearby lamp and began to swing it as he swore loudly.
Stevens said he also tore that agreement into pieces. Before he and Wilson stormed out of the session, Wilson gathered the pieces of the torn documents and put them in her bag. Then, they left for the Munich airport.
But the Intertainment lawyers claimed that Stevens signed two indemnity agreements, which were placed in a safe in Germany. A copy showed up in a court filing Feb. 26. The document was co-signed by Baeres.
Stein claimed Stevens' signature was forged.
Stein said he has experts standing by to prove the forgery claim if and when
Edelman produces an original of the indemnity release.
Edelman said he will produce a signed original of the indemnity release as soon as Stein states,in writing, that Stevens was a victim of forgery. So far, Stein has not done that. He said he was waiting until the indemnity agreement was entered into evidence.
Edelman, Baeres, USA Intertainment head Stephen Brown and an Intertainment source who spoke on the condition of anonymity told a story that differs significantly from Stevens' recounting of events.
"From the moment he got to Munich, Stevens was asking for an indemnity release," Brown said.
"Stevens told me that what had happened with Franchise defrauding Intertainment made him 'physically ill' and gave him an ulcer," Brown said. "He said that not only was Samaha involved in the fraud but that [executives] at Imperial Bank knew all about it."
Stevens allegedly promised to help Intertainment get back the lost millions from Imperial Bank, which had deeper pockets than Franchise. Imperial was about to be acquired by banking giant Comerica. (That merger was completed on Feb. 1.)
According to Intertainment lawyers, Stevens signed the indemnity release in front of witnesses around 3 a.m. on Dec. 18. Stevens then called Ann Loeb, Stein's co-counsel, with the details of the settlement agreement.
According to an Intertainment source, the settlement agreement would have unwound the entire 60-picture $1.25 billion co-production deal between Franchise and Intertainment and provided $35 million in damage claims to Intertainment.
But Intertainment wanted something else.
Imperial Bank was holding $148 million in letters of credit and cash guarantees assigned to Intertainment. Under the agreement, sources said, Franchise would attempt to convince the bankers to assign those letters of credit to Franchise. The letters of credit involved European rights to many of the 22 films Franchise and Intertainment had co-financed. The clause was critically important to
At 4 a.m. on Dec. 18, an hour after he allegedly signed the indemnity release, Stevens talked to Samaha on the telephone. Samaha told him, according to Intertainment's version, not to execute the settlement until Stein had a chance to see it.
Stevens then had what sources describe as a "meltdown."
Without that settlement agreement, Stevens' indemnity agreement was worthless, according to a source at the meeting.
"Stevens knew he could be fucked if he left Munich without the settlement signed," the source said.
According to a document produced later in court, Stevens' alleged indemnity release was valid only if Franchise honored the settlement or if Stevens gave a deposition by Dec. 31, 2000, and produced the documents he allegedly had promised to deliver that would show the alleged fraud.
While sources have described a rift between Samaha and his partner, Stevens,
as a result of the aborted settlement efforts, no one at Franchise will
discuss it publicly.
A friend of Samaha said the relationship between Samaha and Stevens "is stressful, but Elie has a lot to deal with now, and he'll get to Andrew's thing at the right time."
A source at Warner Bros., the U.S. distributor of Franchise's films, said Stevens and Samaha are participating in meetings together at the studio.
Samaha emphatically disputed any claims that executives at Imperial Bank, where he is the biggest film finance customer, had engaged in fraud. Imperial's lawyer, Michael Wachtell of Buchalter Nemer Fields & Younger, declined comment for this story.
Stevens said he never admitted to any fraud on the part of Franchise or Imperial
"I never mentioned [Imperial Bank executives] while I was in Munich. It is an assault on my character to suggest I made such a statement. At the time I was in Munich, I was never aware if principals at Imperial Bank even had knowledge of the multipicture deal," Stevens said through Stein.
An Imperial Bank source, speaking on the condition of anonymity, said that
Intertainment's lawyers, not Stevens, planned to use litigation as a
pressure tactic to get Imperial to let Intertainment out of its financial
Despite the lawsuits and the losses, both sides got a bit of good news. Last week, Francise released "Driven," a new Sylvester Stallone film partly financed by Intertainment. "Driven" earned $13.1 million, making it the top-grossing film of the weekend.
Introduction: When Andy and Elie Went to the Movies
Part One of Daily Journal May, 2001 Story: The Players Bang Heads
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